Felix Salmon on the Debt Ceiling Crisis and the Surprising Resilience of the COVID Economy ‹ Literary Hub
Economic correspondent and podcast host Felix Salmon joins co-hosts V.V. Ganeshananthan and Whitney Terrell to talk about the debt ceiling crisis and his new book The Phoenix Economy: Perform, Life, and Income in the New Not Standard. Salmon unpacks the political and monetary ramifications of our existing debt ceiling crisis—and compares the present impasse to prior debt ceiling fights.
He also discusses the underappreciated and unexpected financial effects of the COVID pandemic, like an enhance in the monetary overall health of decrease earnings Americans and a redistribution of population away from main cities. Salmon reads from The Phoenix Economy, and explains how the pandemic will continue to transform our financial lives.
Verify out video excerpts from our interviews at Lit Hub’s Virtual Book Channel, Fiction/Non/Fiction’s YouTube Channel, and our internet site. This episode of the podcast was made by Anne Kniggendorf, and edited by Hannah Karau.
From the episode:
V.V. Ganeshananthan: I’m a huge fan of what you contact “this influx of capital into the functioning classes.” It shows that we can influence financial excellent of life in decrease earnings brackets, if we want to. The query is, do we nonetheless want to do that? Will this continue in any way? The operate specifications that the Republicans want for Medicaid are moving in specifically the opposite path, it appears to me.
Felix Salmon: So it seriously type of depends on how you assume about “we.” A lot of these discussions assume about “we” as getting the government, appropriate? The government writes checks to the poor, and the poor do effectively, or the government imposes operate specifications on the poor, and the poor do significantly less effectively. The poor are just sitting there as somewhat powerless folks in America. They wind up successfully carrying out as effectively or as badly as the U.S. government desires them to do, and the energy, it just sits in Washington.
I assume what we saw for the duration of the pandemic was the rise not only in incomes of the poor, but also in the energy of the poor. They located themselves with bargaining energy for the very first time. The relation in between labor and capital began becoming substantially much more even for the very first time that, much more or significantly less, any of us can bear in mind. The poor began getting in a position to quit their jobs and come across greater paying new jobs. They began getting in a position to unionize, and they began getting in a position to demand greater wages.
And employers began realizing that they required to spend individuals much more in order to get them to do operate. All of these issues occur outdoors this query of: “should the government impose operate specifications on Medicare and issues like that?”
So, yes, we can have debates about the government. And of course, what the government does to the poor is pretty critical, and poverty reduction applications are vital. But underneath that, what we saw for the duration of the pandemic, and I assume this is right here for this foreseeable future, is really a thing much more highly effective nonetheless, in a way, which is that we’ve empowered the functioning classes to demand greater functioning situations and greater spend.
Whitney Terrell: I adore that. I imply, I’m a fan of that. It is a seriously outstanding point since it has been a extended time because you have noticed individuals be in a position to bargain for greater wages, at least in my anecdotal memory of the final 20 years. There are some difficulties, although, and I wonder how they’re going to have an effect on that element of it. In the book, you talked about how really low interest prices are, which have now changed in the final year since the Federal Reserve has raised prices substantially.
And the other point that I believed about was immigration. I imply, Trump quickly closed the borders utilizing this law that was related with influenza and unique ailments, saying that you can deny asylum to any person who may well be bringing a illness in the United States. They just stopped carrying out that. So I wonder, could you speak about these two difficulties at that level?
FS: I can comment on the immigration procedure. I assume the very first point you require to have an understanding of about immigration, and I’ll comment on interest prices in a minute, but the point you have to have an understanding of about immigration is that it is great for each labor and capital in a weird way. Definitely, corporations want new individuals to do the jobs. We have a main labor shortage in the United States appropriate now, which was triggered largely by Covid. A lot of individuals died, a lot of individuals got extended Covid, and a lot of individuals just got, you know, a feeling of “YOLO. I do not like my job, and I’m going to quit it to go and lay on the beach or commence my personal firm.”
So we do have this extremely low unemployment price that is causing a labor shortage, and immigration would assistance alleviate some of that labor shortage. But immigration— and this is a thing which economists have seriously studied for decades—at the margin, does not seriously have any massive impact on wages, but most likely brings them up rather than down. The immigrants wind up beginning corporations and employing individuals and growing demand for labor and developing the size of the economy. And most vibrant economies have fairly robust degrees of immigration and the much more immigration America has, historically speaking, the greater its economy has accomplished and the greater off its workers have been. So I assume we can be pro-immigration although nonetheless wanting much more energy for the functioning classes. I assume it is simple to hold each of these two tips in your head at the similar time.
And interest prices are slightly much more fascinating. You know, the complete point of the Federal Reserve raising interest prices is to cool demand in the economy they believed that the economy was operating also hot. They just wanted corporations to slow down a bit and employ fewer individuals and attempt to cut down demand for labor, amongst other issues. That will unquestionably show up in lowered demand for workers in the bottom half of the earnings distribution, for certain, but a single of the weird issues is it has shown up, initially, largely in the best half of the earnings distribution.
WT: Yeah, that is what I’ve been noticing, the software program engineers are acquiring laid off.
FS: Precisely. The huge layoffs have been in locations like Google and Amazon and Facebook, appropriate? They haven’t been in rapid meals joints. So you know, possibly that is the way we can cut down demand, by laying off a couple of software program engineers generating half a million dollars a year, and they’ll have to come across some new job paying $400,000 a year. That could have the similar impact.
VVG: This is fascinating. I am curious, and I assume we’re most likely going to do a complete separate episode about this later, but I’m seriously curious about your take on how this will match in—I’ve been reading all of this stuff about efforts in unique states to loosen the regulations on labor by minors. And also, of course, there have been some exposes about the exploitation of migrant youngsters for labor. But it appears like two separate issues, like each this type of performative Republican work to be like, “we want our youngsters to operate,” and it is also an try to, in some way, address this labor shortage, that is not immigration. I’m just curious what you assume about that and what possible effect, if any, it will have.
FS: Correct. There’s a complete bunch of pretty, pretty separate difficulties getting conflated right here. A single is that type of nostalgic Republican concept of like, “I had a paper route when I was a teenager, and it was excellent for me, and I discovered the energy of the dollar and the energy of really hard operate, and we really should encourage our youngsters to come across jobs like that.”
That type of point plays effectively with a specific element of the electorate, and it is entirely unrelated to the other point that is taking place, which is genuine exploitation of minors who are getting forced into operate and from time to time not paid at all, who are normally migrants who are normally undocumented, who are normally just getting entirely exploited. And that is, and normally has been, and normally really should be illegal. It is not seriously getting enforced super really hard in all states. But even if you pass laws, sort of saying we really should enable children to operate, like the intense exploitation of migrants is a thing that is not going to be created legal and of course shouldn’t.
WT: All appropriate, so let’s say we default, let’s say they do not get it place collectively. Okay. So what would occur? The stock market place would crash, I assume. It went down like 19 %, I assume, in 2011 when we got close to it. The bond market place would go haywire. Possibly the U.S. would get one more S&P downgrade on its debt, which is what occurred also in 2011, if I’m remembering appropriate. Or possibly that was an earlier year, you can inform me. Would this seriously have an effect on individuals who do not have huge stock and bond holdings? In the book you pointed out that the enforced hibernation of Covid really had some positive aspects, appropriate? Is it probable that a debt default and ensuing financial winter would have some of the similar positive aspects? Specially for the functioning class? We just do the similar point? Oh, yeah, we get much more stimulus, everybody stays property. It’ll be great.
FS: Okay. My thesis in the book is that we’re in “the new not normal” and lots of unexpected issues occur. And we have to be open to crazy, unexpected events. And I suppose that, in principle, a U.S. government default all of a sudden getting a great point would be really unexpected. I also assume it would be extremely unlikely. There is a lot of doom and gloom getting wheeled out in terms of what would occur in the occasion of default, since we haven’t defaulted seriously, because 1878.
We do not seriously know, so I cannot inform you what would occur. But what I can inform you is that the Treasury Bond market place is the bedrock upon which the whole international monetary program sits, and these pretty steady and predictable money flows in terms of the interest payments on Treasury Bonds coming from the U.S. government and flowing into the whole international monetary program is what keeps the international economy moving. Without having these flows, anything grinds to an instant halt. The funds does not go exactly where it wants to go.
• The Phoenix Economy: Perform, Life, and Income in the New Not Standard • Slate Income podcast
• “A Short History of Debt Ceiling Crises” by Raymond Scheppach
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