JW Mason – Page 3 – J. W. Mason

Down Here Tonight

It’s the 4th of July. In the empty lot by the playground, a group of Bangladeshi teenagers are setting off professional-grade fireworks. Bang, bang! BANG! Bang, whiz. Bang-bang! Sometimes one fails to go off properly; everyone steps back until it’s spent itself into the asphalt. A group of 30 or 40 people, families with kids, black white whatever, watches from a safe distance. A couple of kids on bikes go round and round. At one point it seems like the fireworks are finished; then a group of three laughing girls, none more than ten, carry in a big box together, and the show starts up again.

In front of the bodega next to Veterans of Foreign Wars Post 8160, three old men sit out on the sidewalk on folding chairs. If there’s anything worth seeing, they’ll probably see it. The well-fed bodega cat rambles between them. Next door is a taco place that’s converted an old schoolbus into an outdoor dining shed.

There’s no traffic, for some reason. A few blocks from the playground, a couple of Italian families set off rows of big sparklers right in the street, scrupulously spraying them down with the garden hose afterward.

A block further there’s a building with several Mexican families, who all summer hold multigenerational parties out on the sidewalk: folding chairs, cooler, grill, kiddie pool. Next door is the bodega run by Octavio and Rosario from Oaxaca, where my kids have gone alone for eggs and milk and lemons since they were six. Tonight’s party is bigger than usual, fifty or sixty people ranging from toddlers to grandparents or great grandparents. The teens and tweens play soccer in the street, slowly and reluctantly giving way when the occasional car needs to get through.

The last call to prayer comes from the mosque at the corner, struggling to be heard over the cacophony. Now here’s another group setting off unlicensed fireworks. The seven year old joins up with a stranger girl his own age to run off for a better view; it’s fine, they know better than to cross the street.

The moon is just past half, waxing. A drone wobbles overhead, someone struggling to control it. A helicopter whirls past; it has nothing to do with us. Who knows where the police are — elsewhere, anywhere, not here tonight.

Down here in Brooklyn, it is still America.

Recovery from the Next Downturn May Depend on State and Local Governments

(I write a monthlyish opinion piece for Barron’s. A shorter version of this post appeared there in June 2025. My previous pieces are here.)

As recession fears grow, it’s natural to look back to the experience of past downturns to think about how we might better prepare for the next one. Here is one lesson: We’re less likely to see a deep and persistent downturn if we can sustain state and local government spending.

An underappreciated macroeconomic development of the past decade was the sustained turn to austerity at the state and local level. Between 2007 and 2013, state and local employment fell by 700,000 — a decline without precedent in US history. If public employment per capita were the same today as in 2005, there would be more than 2 million additional people working for state and local governments. (See the figure nearby.)

Some may see this as a good thing — fewer public employees means less government waste.

But in the American federal system, it is state and local governments that provide the public services that people and businesses rely on. In our daily lives, we depend on teachers, firemen, sanitation workers, librarians and road crews employed by our state, county or city. The only federal employee we are likely to encounter is the person delivering the mail.

And from an economic standpoint, spending is spending, whether useful or wasteful. There are still debates over whether the 2007 stimulus was big enough. But what’s sometimes forgotten is that increased federal spending was accompanied by deep spending cuts at the state and local level. As a share of potential GDP, state and local spending fell by a full point between 2007 and 2013, and has remained at this lower level ever since. As people like Dean Baker and Rivka Deutsch warned at the time, these cutbacks canceled out much of the federal stimulus.

Some might argue that these spending cuts, while unfortunate, were unavoidable given state balanced-budget requirements. It is certainly true that state governments have less fiscal room for maneuver than the federal government does, and local governments have still less. But balanced-budget rules don’t mean that these governments cannot borrow at all — if it did, there wouldn’t be a $3 trillion municipal-debt market.

Balanced budgets mean many things. In some states, balanced budgets are written into the state constitution, but in others, they are simply statutes that can be waived by a vote of the legislature. In some places, revenues and expenditure must actually balance at the end of the year, while in others, the adopted budget must balance but the state may end the year with a deficit if revenues end up falling short. Most important, balanced budget rules normally apply only to the operating budget; they don’t restrict borrowing for investment spending.

Yet it was state and local investment that fell most steeply following the Great Recession. Adjusted for inflation, state and local capital expenditure fell by 15 percent between 2007 and 2013, by far the steepest drop on record. In real terms, investment spending at the state and local level was no higher in 2022 than it was 15 years earlier.

Not surprisingly, this fall in state capital spending was accompanied by a fall in state and local borrowing. Over the decade of the 2010s, nominal state and local debt was flat. In other words, net borrowing by state and local governments was essentially zero — the first sustained period in modern US history where that was true. This persistent loss of demand may have done as much as the disruptions to the financial system to hold back recovery after the 2007-2009 recession.

In 20078, there was a fiscal response on the federal level, even if it turned out to be too small. In the current climate, that seems unlikely. So whether the next recession is followed by a quick recovery or turns into a sustained period of weak growth, will depend even more on how well state and local spending holds up.

It’s not hard to imagine governments feeling compelled to curbing spending in a downturn. Many are already stretched thin even in these comparatively flush times. Maryland and Los Angeles, for example, both recently saw their credit ratings downgraded. Washington DC, whose tax base is suffering from federal layoffs, already faces rising borrowing costs.

Even where the local economy holds up better, governments may feel it is prudent to cut back on investment — a classic example of a choice that may look individually rational but, when taken across the board, is collectively self-defeating, as spending cuts in one place result in lost income elsewhere.

Nor is state fiscal capacity only a concern in a downturn. It will take years for to return many federal services to their pre-DOGE levels, assuming future administrations even wish to do so. But demand for these services has not gone away. So states — especially larger ones — may find themselves forced to assume responsibility for things like food safety or weather data, for which they previously depended on Washington. States and localities may also find themselves paying more in areas where they already had primary responsibility, like education and transportation. All this will call for bigger budgets and, at least in some cases, more debt, not just in a recession but perhaps indefinitely.

What can be done to help states find the financial space to maintain spending in a downturn, or to increase it to compensate for federal cutbacks?

The most basic, but also most difficult, requirement is a change in outlook among state and local budget officials. The idea that government should spend more in a recession is a hard enough sell at the federal level; it’s not something state (let alone local) officials think about at all. The natural instinct of state budget makers to federal cutbacks will be to cut their own spending as well; it will not be easy to convince them that they should, in effect, steer into the skid by spending more.

But circumstances can force policymakers out of their comfort zones. The problems of providing public goods and stabilizing the macroeconomy will not go away just because the federal government steps back from solving them. Even if it’s impossible for other levels of government to fully replace the federal government, small steps in that direction are still worth taking. We can’t expect states and localities — even California or New York City — to recreate NASA or NIH. But it is certainly possible for state and local governments to do more with their budgets than they currently do.

In a number of states, even capital spending is financed out of current revenues rather than with debt. Unsurprisingly, public investment in these states appears to be more pro-cyclical than elsewhere. A taboo against borrowing even for capital projects means, in effect, letting fiscal space go to waste. This will be especially costly in a downturn if a federal stimulus is not forthcoming.

Almost all states have constitutional or statutory ceilings on debt and debt service. In practice, these limits are more important than balanced-budget rules, since they apply to borrowing for capital spending as well as operations. These are worth revisiting. There is nothing wrong with these in principle. But in some cases, they may be excessively restrictive, limiting the issue of new debt even in cases where the risks are minimal and the social value is great.

Of particular concern are limits that are based only on the most recent year of tax revenue or state income, rather than an average of the past several years. These rules can impart a pro-cyclical bias to capital spending, reducing it during a recession even though that is when it is most macroeconomically valuable, and when borrowing (and perhaps other) costs are lower. It’s a perverse form of fiscal guiderail that encourages states to borrow when interest rates are high, and discourages it when rates are low.

Another important limit on state fiscal space is credit ratings. State and local budget officials are deeply protective of their credit ratings; fear of a downgrade can discourage new borrowing even when there is no legal obstacle and when the capital projects it would finance are sorely needed. These concerns are certainly understandable, if perhaps sometimes exaggerated. The problem is that rating agencies may not be the best judges of government credit risk.

In the wake of the financial crisis of 2007-2009, there was a brief period of intensified scrutiny of rating agencies’ practices. The obvious problem was the AAA ratings given to mortgage-backed securities that, in retrospect, were anything but risk-free. But on the other side, rating agencies were giving systematically lower ratings to municipal borrowers than to corporate borrowers with the same chance of default. A review by Moody’s at the time suggested that the historical default rate on A-rated municipal bonds was comparable to that on AAA-rated corporate debt.

This problem has receded from view, but it was never really addressed. More recent studies have confirmed that, after adjusting for their different tax treatment, municipal borrowers pay substantially higher interest rates than corporate borrowers with similar default risk — a difference that might be explained, at least in part, by their different treatment by rating agencies.

More broadly, credit ratings are a problematic service for for-profit businesses to provide in the first place. By their nature, they need to be freely available to anyone who might buy the rated debt. Meanwhile the debt issuer, who pays for them, has opposing interests to those of the lenders who will use them. Credit ratings are public goods; there’s a clear case for them to be provided by a public rating agency, as some economists have proposed. If bond ratings were a public service, based on consistent, transparent principles, that might relieve some of the anxiety that deters state and local governments from making full use of their fiscal capacity.

A more radical idea would be a public option not just for credit rating, but for lending. A few years ago, there was a wave of interest in the idea of a national investment authority. These proposals did not really make sense in the form they were originally put forward; given that the federal government already enjoys the lowest interest rate of any borrower in the economy, there is no use in creating a new entity to issue debt on its behalf. But there is a better case for a new public entity to lend to state and local governments, which face more serious constraints on their financing.

Unfortunately, the same federal retrenchment that calls for a larger role for state governments, also means proposals like a public rating agency or a national investment authority are unlikely to get off the ground for the foreseeable future.

The one place where capacity does still exist at the federal level is the Federal Reserve. Indeed, thanks to the Supreme Court’s ruling in Trump v. Wilcox, the Fed’s stature has been elevated; it is now, apparently, the only independent agency constitutionally permitted at a federal level.

Many people (including me) have long called for the Fed to support the market for municipal debt, in the same way that it supports other financial markets. For years, there was debate about whether this was something the Fed had the legal authority to do. But during the pandemic, the Fed made it clear that it did, by creating the Municipal Liquidity Facility (MLF), which promised up to $500 billion in loans to state and local governments.

In the event, only a handful of municipal borrowers made use of the MLF. But as thoughtful observers of the program pointed out, this greatly understates its impact. The existence of a Fed backstop meant that muncicpal borrowers were less risky than they would otherwise have been, which allowed them to access private credit on more variable terms. A study from the Dallas Fed found that, despite its limited makeup, the existence of the MLF led to interest rates on municipal bonds as much s five points lower than they otherwise would have been.

Like many pandemic measures, the MLF was quickly wound down. But there’s a strong case that something similar should become part of the Fed’s permanent repertoire.This wouldn’t have to be an open ended commitment to lend to local governments; it might, for instance, be offered only in response to natural disasters — or recessions.

Supporting state and local borrowing is presumably not a role that the Fed wants. Stabilizing demand is definitely not a role that state governments want. In a more rational political system, these responsibilities would land elsewhere. But in the real world, problems must be solved by those who are in a position to solve them. If the federal government is stepping down, someone else is going to have to step up.

Against Money

I’ve mentioned various times on this blog that Arjun Jayadev and I have been writing a book about money. The book, now called Against Money, is finally done: After two rounds of revisions, Arjun and I sent the final manuscript to the publisher earlier this month.¹ The book itself will not be coming out until next spring; I guess that’s just the kind of schedule academic publishers work on. But since I recently had to write up a summary of the book, I thought I’d share it here a bit in advance.

The goal of the book is to take longstanding arguments about the nature and function of money from the Keynesian tradition and bring them into contact with concrete historical and policy questions. Central to these arguments is a rejection of the idea that money is neutral, a veil over a non monetary “real economy. (“The Veil” was one of the working titles for the book.)

Economists — and not only economists — tend to assume that money values merely reflect the inherent scarcity and usefulness of objects existing in the world, and that the organization of economic life via money merely reflects more fundamental relationships of production and exchange. Against this, we argue that many important historical developments — from the rise of household debt in the United States to the sovereign-debt crisis in 2010s Europe — can only be understood in specifically monetary terms. Similarly, we argue that the interest rate cannot be understood in terms of a tradeoff between present versus future consumption, but only in terms of the scarcity of money itself, and that statistics like GDP are merely the aggregate of a certain set of money payments, rather then reflecting some underlying “real” quantity. Money, we argue, plays a critical coordinating role in modern societies, which has facilitated cooperation between strangers on a vast scale but which has shaped society in particular ways that are often inimical to human flourishing, and which must ultimately give way to other forms of cooperation.

The title Against Money is trying to do a few different things. First, it highlights the distinction between the network of money payments and values, on the one hand, and on the other hand the concrete social and material reality that exists apart from them, and often in tension with them. In this sense, we mean “against” in the same way one might distinguish a figure against a background; by writing about money, we seek to clarify our vision of the social world that exists around, outside and in opposition to it. Second, the title announces our criticism of familiar ways of thinking, our challenge to the dominant view of money within economics. Finally, the title links the book to a political project that seeks to transcend markets and property rights as the organizing principles of society, and to imagine a future in which money no longer defines the scope and possibilities of our collective existence.

The first chapter points to the broad hold of the idea that money is, or ought to be, a neutral representation of some underlying “real” economy, and proposes as an alternative the idea that money plays an active role as a device for coordinating productive activity. We discuss this in terms of several fundamental tensions or paradoxes inherent in the nature of money: that it functions as an objective, quantitative measurement, but there is no external quantity that it is measuring; that as a unit of measurement, it is an abstract, universal equivalent, but that in use it must always take some particular form; that its coordinating function requires it to be both rigid and elastic.

Chapters two and three explore how the two great monetary aggregates debt and capital evolve according to their own autonomous logics, actively reshaping — rather than merely reflecting — the organization of material life. With respect to debt, we highlight the importance of inflation and interest rates — as opposed to new borrowing — for its evolution over time, as well as the importance of political choices by central banks.

With respect to capital, our starting point is the tension between the conception of it as a mass of concrete means of production, on the one hand, and of a quantity of money, on the other. While economic theory treats capital as a quasi-physical substance that grows through the accumulation of savings, in reality, we argue, long run changes in measured capital are almost entirely due to changes in the value of existing assets. These in turn are explained by liquidity and financial conditions, on the one hand, and shifts in the relative social power of asset owners as against workers and the broader society, on the other.

Chapters four and five are concerned with the interest rate, the subject of some of the most difficult and important questions around money. We begin by criticizing both the conventional account of the interest rate in terms of substitution over time in a nonmonetary economy, and the related concept of the “”natural rate of interest” that is supposed to link this theoretical concept with the financial contracts that we observe around us. After rejecting these approaches to interest, we turn to Keynes’ alternatives. Keynes, we argue, offered two distinct accounts of interest — first, as the price of liquidity, and second, as a conventional price determined by the self-confirming speculative dynamics of bond markets. Both these stories, we argue, offer important insights into the interest rate, but they are two different stories, with sometimes quite different implications.

Chapter six focuses on money as measurement, interrogating the conventional practice of adjusting monetary quantities with a price index in order to compute underlying “real” quantities. In our view, what is real in an ontological sense is precisely the monetary payments and quantities. The ubiquitous practice of treating deflated money quantities as objects with an independent existence is deeply rooted in a ideological vision of the world that naturalizes markets and property rights; it distorts our efforts to understand the world in important ways.

Finally chapter seven asks what it means to imagine a world beyond money. Here we return to the idea of money as a coordination device, introduced in the opening chapter. Money is one particular way of organizing human activity — one that is especially suited to organizing cooperation between strangers, and separating specific forms of cooperation from the larger social matrix in which they are normally embedded. Thus it has played a central role in the creation of the vast division of labor that is so much more extensive in the modern world than in any previous society. But this is a not a process that continues without limit. Ongoing relationships tend to become reembedded, and conscious planning tends to replace the anonymous coordination of the market. Because we are so accustomed to thinking of productive life in terms of money, we tend to overlook the extent to which production is already socialized. Freeing ourselves from the rule of money may thus be a less utopian project than it appears.

The book is intended for a range of social scientists and humanists interested in debates about money, as well as a broader public of activists and intellectuals, and not (just) for economists. We hope it will make a connection between the rich but often obscure currents of thinking about money in the heterodox economics traditions drawing from Keynes and Marx, and the wider universe of public debates.

We have been working on this book for a long time. I first announced it on this blog in 2020 (promising an early 2022 publication date!), but my earliest notes and outline for the book are from 2016.² One way of looking at the book is as an attempt to fill in the argument we sketched out in the conclusion of our 2016 paper on “The post-1980 debt-disinflation”:

It was one of the great insights of Keynes that modern economies cannot be conceived of only as ‘real exchange’ economies; many important questions can be answered only in terms of a model of a ‘monetary production’ economy… In a world where liquidity cannot be identified with any particular asset but is essentially a social relation, analysis of the financial side of the economy requires discussing the asset and liability side of balance sheets independently, rather than netting them out as the pseudo asset ‘net wealth’. Any discussion of debt, in particular, must start from the fact that it is a financial liability, and not simply a negative asset or an accumulated excess of consumption over income. …

Both mainstream and many heterodox economists tend to analyse debt in terms of real flows. … But, in fact, the financial relationships reflected on balance sheets and the real activities of production and consumption compose two separate systems, governed by two distinct sets of relationships. Explanations that reduce debt to the financial counterpart to some real phenomena ignore the specifically financial factors governing the evolution of debt. The evolution of demand and production has to be explained in its own terms, and the evolution of debt and other financial commitments has to be explained in its terms. …

As a historical matter, the evolution of household debt in the US bears little resemblance to any of the real variables whose financial counterpart it is imagined to be. … Indeed, as a first approximation, it would be better to imagine household income and expenditure as evolving according to one set of systematic relationships, and household balance sheets evolving according to an entirely separate set of relationships. Balance sheets and real flows do interact, sometimes strongly. But conceptualizing the two systems independently is an essential first step toward understanding the points of articulation between them.

Arjun and I have made similar arguments about the autonomous development of financial variables here, here, here and here, among other places.

The book also builds on our 2018 article (with Enno Schröder) on “The Political Economy of Financialization, ” where we wrote: “In addition to, or instead of, a method for allocating claims on productive resources, finance can be seen as a system for constraining the choices of other social actors.”

And it builds on my 2016 Jacobin piece “Socialize Finance.” There, I wrote about what money

is imagined to be in ideology: an objective measure of value that reflects the real value of commodities, free of the human judgments of bankers and politicians.

Socialists reject this fantasy. We know that the development of capitalism has from the beginning been a process of “financialization” — of the extension of money claims on human activity, and of the representation of the social world in terms of money payments and commitments. We know that there was no precapitalist world of production and exchange on which money and then credit were later superimposed: Networks of money claims are the substrate on which commodity production has grown and been organized. And we know that the social surplus under capitalism is not allocated by “markets,” despite the fairy tales of economists. Surplus is allocated by banks and other financial institutions, whose activities are coordinated by planners, not markets.

I can’t promise that the book fulfills all the promises made in those earlier pieces. But that is what is an attempt at.

Writing, as they say, is rewriting. Our first draft of the book was 200,000 words. The final version is just over 100,000 words. Some of this was the usual tightening, but a large part was the cutting of three substantial chapters. One was a historical sketch of debates about money and credit over the past two hundred years of economic thought. One was an extension of the chapter on money as measurement to the international context, looking critically at the use of purchasing power parity to compare “real income” across countries. And one was an exploration of the political economy of the corporation, as a central locus of the conflict between the logic of money and concrete productive activity.

The first of these excised chapters we will, I hope, publish relatively soon as a self-contained article. The second is going into the drawer for now; at some point in the future, perhaps it will form part of a successor to this book asking similar questions about a world with many different moneys. The third excised chapter, on the corporation, we are fleshing out into our next book. It is provisionally titled The Hidden Abode: Profits, Production and the Contradictions of the Corporation, and — knock on wood — should be published by the University of Chicago Press sometime in 2027.

2024 Books

From The Last Cruze, by LaToya Ruby Frazier. Laura and I went to see her show at MOMA this past summer. If I’d been able to find the coffee-table book version, it would be on this list.

Books I read in 2024:

Joe Studwell, How Asia Works. Arjun recommended this to me some years ago; I finally read it this year because I assigned it to my economic history class. It’s one of the best things I’ve read on late industrialization in Asia — it can comfortably go on the shelf with Alice Amsden’s Asia’s Next Giant or Chalmers Johnson’s MITI and the Japanese Miracle, and in fact I’d recommend it over them, both because it’s more current, and because this is a topic that really benefits from a comparative perspective. One thing I particularly appreciated was his emphasis on the critical importance of land reform as a precondition for industrialization, both because of the greater efficiency of small farms in the labor-surplus context of early industrialization, and because of the need to close off land as an outlet for wealth to spur investment in industry.

Thomas A. Stapleford, The Cost of Living in America. A comprehensive history of the development of price-level statistics in the United States, which I read in the course of doing work on the money book. It’s an excellent work of narrative history which is equally attuned to the concrete work of producing price statistics, the theoretical questions of what they are intended to represent, the political stakes of debates over them, and the concrete purposes for which they are used. It’s a pretty specialized topic, admittedly, but if it’s one that you’re interested in, then this is the book to read.

Eric Hobsbawm, The Age of Revolution and The Age of Capital. I first read these many years ago in college, but reread them this year because the 13-year old still likes being read aloud to before bed and serious history is what he is into. The books are as good as I remembered; I would recommend them to anyone interested in how the modern world took shape in 19th century Europe. Hobsbawm’s communist politics aren’t overt, but they’re what make the books work: That everything builds toward the Russian Revolution gives them their propulsive force, rather than just being a catalogue of one thing after another.

Annie Ernaux, Exteriors and The Years. I read these this year, after reading her A Man’s Place last year. I didn’t find either of these quite as beautiful or as moving as that one, but they’re still great books. The Years uses a second person narration to seamlessly blend a personal narrative with the shared experience of a generation; I wonder, would this work for anyone who wasn’t born in the immediate postwar years?

Jonathan Levy, Ages of American Capitalism. This is another book I read because I assigned it for my economic history class. It worked perfectly for that purpose, both because it is a survey of the whole economic history of the United States from the 16th century to the present, and also because it has a strong central theme — the changing forms and meaning of capital as an organizing principle of economic life.

You can tell it was written by a historian rather than an economist — there are many more reproductions of painting and photos than there are charts or tables. Levy is a somewhat eccentric writer, and makes some quirky choices about how he approaches his topic — there’s a whole chapter based around a close reading of Melville’s “Confidence Man” as an illustration of the importance and difficulty of trusting strangers in a more mobile and urbanizing society, and the chapter on the civil war and reconstruction spends more time on how the war was financed than on changing labor relations in in the postwar South. But for anyone looking for a comprehensive economic history of the United States, I would very much recommend it.

Justin Torres, We the Animals. Laura recommended this one — the author is a friend of a friend. It’s a powerful, but lighthearted and poetic, book about growing up Dominican and gay in upstate New York. Like Ernaux’s The Years, it gets some its effect from the fuzziness of the protagonist, which gradually shifts from the three brothers collectively to the narrator alone.

Peter Stearns, The Industrial Revolution in World History. This book I also assigned to my economic history class, which was a mistake. If the book came out today, its garbled content would be a sure sign of AI slop. Did you know that enclosure in early modern England refers to a government requirement that all landowners put fences around their fields, which smaller landowners could not afford to do? (It does not). Do not read this book.

Joshua Freeman, Behemoth: A History of the Factory and the Making of the Modern World. This book, by the author of the magnificent Working Class New York, is one more that I read because I assigned it my economic history class. It tells the history of the factory through half a dozen iconic sites, from early 19th century Lowell, to early 20th century River Rouge, to Shenzhen today. While the broad outlines of most of the stories are broadly similar to what you would find in other histories of industrialization (the River Rouge chapter has considerable overlap with Levy’s chapter on the same topic) there’s also a lot here that was new to me, especially thanks to Freeman’s focus on the factory buildings themselves. One of the central themes of the book (which I touched on in a blog post) is how similar the experiences of factory work have been over the past two centuries, even when the broader social context is very different.

Stephen Marglin, Raising Keynes: A Twenty-First Century General Theory. I read this book partly because I recalled being very impressed years ago hearing Marglin give a talk based on the material in it, and partly in order to use parts of it in my graduate macro class. It turned out not to be helpful for that purpose, which is not a knock on the book — it’s just that with this kind of dense material you have to really focus on it if you are going to use at all.

The book presents itself as an effort to rewrite the theory of the General Theory in the language of contemporary economics. One thing I greatly appreciate about it is how attuned Marglin is to the real-world questions — both in Keynes’ time and today — that the theory must speak to. His central claim is that while the logic of Keynes’ argument does not work as he presented it, it does work when rewritten in terms of explicitly dynamic models. For this reason, much of the book is a deep dive into dynamics and various out-of-equilibrium adjustment processes, something that economists more often gloss over to focus on the ultimate equilibrium position. It makes a big difference, for instance, if we think firms that find themselves with excess inventory respond by reducing prices or by reducing output.

I have mixed feelings about the book. I certainly share Marglin’s conviction that Keynes offers profound insights into the capitalist process, which need to be reformulated to connect with modern debates. And the book’s discussions of different adjustment dynamics is brilliant and original. But I am not sure that the latter helps much with the former — Marglin’s “rescue” of Keynes is not, to me, very satisfactory.³ So while there is a lot of great stuff in here, the book as a whole seems a bit less than the sum of its parts.

Ray Bradbury, The Martian Chronicles. Laura assigned this to a class, so it was around the house and I picked it up. What a weird and engrossing book. Even though it’s imagining a future that now lies well in the past, it doesn’t feel dated because Mars, here, is just an allegory for the American West.

Marc Kirschner and John Gerhart, The Plausibility of Life: Resolving Darwin’s Dilemma. I’ve always been fascinated by evolutionary biology, and evo-devo in particular. Among other things, it seems to me there’s a striking parallel between orthodox economic theory and the simplistic version of Darwinian evolution we’re taught in high school (and that’s now beloved of YouTube explainers.) The development of complex new forms is fundamentally different from movement toward an optimum within a given space of phenotypes — a difference highlighted by the kind of research into development described here. Evolution is not about selection between random genetic variation, but the result of preexisting systems that allow for the creation of complex forms, into which genes are just one input, often interchangeable with inputs from the environment or the organism’s own behavior. The best book I’ve read on this topic remains Mary West Eberhart’s Developmental Plasticity and Evolution; but I learned a lot from this one too.

David Graeber, Pirate Enlightenment. This posthumously published book explores the mixed pirate-Malagasy communities in 17th century Madagascar, drawing on a handful of contemporary sources and later anthropological work on Madagascar (including Graeber’s own). The central concern is the same as in The Dawn of Everything: the existence of politics in premodern societies, in the sense of conscious, collective choices about how society should be organized; and the priority that many of these choices seemed to give to preserving freedom from personal domination or compulsion. I freely admit to being a big Graeber fan, but I was often quite irritated by the previous book; I think the picture is more convincingly drawn on the smaller canvas here.

A. J. P. Taylor, Bismarck: The Man and the Statesman. I’ve gotten into the habit of listening to audiobooks while cooking and cleaning, and I find that narrative history and biography works very well for that format. This is a perfectly serviceable biography, covering all the important events in Bismarck’s life and career, providing the historical and political context, and engaging, sometimes critically, with the existing literature, while keeping to a reasonable length.

I have to say, the biggest impression I came away with is that Bismarck must be one of the most boring people ever to have played such a central historical role. Every major decision he made was, in Taylor’s telling, purely tactical, oriented to whatever short-term problem he was most concerned about at the moment. (The crowning of Wilhelm as Emperor of Germany, far from being the secret agenda of the war with France, was, in this telling, a last-minute improvisation to ensure that Prussia’s North German allies didn’t drop out of the war.) Once the immediate crisis was dealt with, he just kind of sat around waiting for the next one. Bismarck was, evidently, an educated and intelligent person; but you get the impression that as the avatar of the Juncker class, he aspired to stupidity as a positive virtue.

Giuseppe Fiori, Antonio Gramsci: Life of a Revolutionary, translated by Tom Nairn. Another political biography I listened to as an audiobook. It’s an outstanding biography; written in the 1980s, when many of Gramsci’s contemporaries were still around, it draws on interviews by the author as well as the usual archival sources. A lot of the interest comes from the fact that Gramsci was located so precisely at one of the hinge-points of the 20th century; can you believe that he and Mussolini personally debated, on the floor of the Italian parliament, the class basis of fascism and whether it could be considered revolutionary? But Gramsci is also sort of the anti-Bismarck, not only in his personal background and the political project he helped lead, but also because he personally is a complex and fascinating individual who its delightful to spend time with, even in the mediated form of a biography. After I finished it, I had the thought: If a genie offered me an hour anywhere at any time in history, I’d like to spend it at Gramsci’s home in 1926, while he played with little Delio.

Alice Munro, Friend of My Youth. I read almost all of Munro’s books 15 or so years ago. I picked this collection up again after the story about her daughter’s abuse at the hands of her husband came out, to see if they read differently. They do, a bit. Mothers who abandon their children, or who overlook or ignore some danger to them, are a recurring theme in Munro’s work, and that hits a bit differently now. But mostly rereading them just convinced me, again, that Munro is the greatest contemporary writer of short fiction. This collection is one of her better ones, I think (there are always a few duds); it particularly highlights one of Munro’s other recurring themes, the presence but inaccessibility of the divine in the world, which we can perceive only as a kind of negative space around it, an absence or hole. (In this collection, the title story and “Pictures of the Ice” are two outstanding examples.) Anyway, I stopped watching movies by Woody Allen and Roman Polanski many years ago. And while I loved the Sandman comics, and my kids loved Fortunately the Milk (which I suppose should also be on this list), I wouldn’t bring a Neil Gaiman book into my home now. But reasons good or bad, I don’t feel that way about Alice Munro.

Eric Cline, 1177 BC: The Year Civilization Collapsed. One astonishing thing you learn from books like this is how much writing survives from over three thousand years ago. It’s a like a whole other history before history, as far before ancient Rome as Rome is from us. What I like about this book in particular is how well it does the most important thing about writing about ancient civilizations — paying constant attention to how we know what we do know, and to how much we don’t and probably never will know. The book does not offer any definite answer its central mystery — why so many of the interconnected Mediterranean civilizations of the 2nd millennium BC collapsed around the same eponymous year — but to me that’s a virtue rather than a flaw.

Matt Strassler, Waves in an Impossible Sea. Strassler’s blog is the best thing I know on the internet for explaining fundamental physics to a general audience in a rigorous way. (His recent series on quantum interference is a tour de force.) So I was very excited when this book came out. I’m sorry to say I was rather disappointed. Strassler has an admirable commitment to avoiding shortcuts, or what he call “phybs”, and carefully works his way up from the most fundamental concepts (what is a field? what is a force?) in the most rigorous but nontechnical way. Unfortunately, clarity and precision come at the expense of breadth and depth; I can’t say I learned much of anything new from the book. Well, again, I am a religious reader of his blog; but then, you’d think that’s who his readers would be? Anyway, I definitely recommend his blog; if you’re interested in fundamental physics but don’t know anything about physics (I’m not sure how much overlap there is between those circles?) then you might also want to read the book.

Branko Milanovic, Visions of Inequality: From the French Revolution to the End of the Cold War. I read this survey of economists’ shifting views on income distribution because Tim Sahay and I were going to interview Branko about it, which ended up not happening. It’s an erudite and gracefully written book, as you would expect; but there’s something a bit off about it. As he acknowledges, income inequality as we think about it today was not really a concern for most of the authors he is writing about, particularly the earlier ones. So asking how they would answer our questions can lead to a weirdly off-center perspective, focusing myopically on the few instances where they discussed inequality in something like modern terms. It’s symptomatic that the chapter on Marx includes two full pages discussing whether Marx misquoted a single sentence from Gladstone on the distribution of wealth in England.

I’m a great admirer of Branko’s work, but this is not the book of his that I would recommend to people.

Jerusalem Demsas, On the Housing Crisis. I assigned this for a class I taught last fall on “the economics of New York”. I wanted something that would make the straightforward supply argument on housing costs, and this fit the bill. If you follow housing debates, you won’t find much new here. It’s a collection of her opinion pieces, mostly for The Atlantic; if you don’t have a subscription and can’t get past the paywall, I guess that might be a reason to buy this book.

Patrick Condon, Sick Cities: Disease, Race, Inequality and Urban Land. I assigned this for the same unit in the same class, as the other side of the argument. The housing market is extremely segmented and landlords have a great deal of market power, so housing costs have nothing to do with supply — that’s the position here. (Though this particular book also has a lot about covid, working from home and so on.) Personally, I think both sides of this debate have valid and important points, which both of them then wrongly elevate into absolute truths. But that is a topic for another time.

John Scalzi – Old Man’s War and The Collapsing Empire. The 13 year old, who enjoys science fiction as well as history, picked up one of these. Yeah, they’re not suitable for a 13 year old. I ended up reading them both. I can’t say I liked them very much. A lot of familiar sci-fi tropes recycled, without anything much new being added that I can see. But I read them to the end despite not really liking them, so they evidently work on a basic what-happens-next level.

ETA: I forgot, I also read Mavis Gallant’s Paris Stories last year. They were good.

Previous editions:

The MA Program at John Jay-CUNY – Radical Economics at a Public University

I teach economics at John Jay College of the City University of New York, home of one of the country’s leading MA programs in heterodox economics. And we are accepting applications for Fall 2025.

This is a pitch for why people should study economics here. If that’s not for you, that’s ok; but please forward it on to anyone who might be interested.

Since 2017, John Jay College has offered a MA program in economics. (The department website is here.) It’s one of the only graduate programs in the country that teaches economics from an explicitly heterodox perspective, where Marxian, Keynesian, feminist and ecological perspectives get equal billing with the conventional economics curriculum.

In their first year, a student in the MA program will take rigorous classes in microeconomics, macroeconomics, econometrics and math for economists, just as they would in other programs. But they might also take classes in economic history, political economy (where they’ll read Marx’s Capital, among other things) and community economic development.

For a small, relatively new and little-known program, we get some amazing students. In recent years, we’ve had as many as eight people in a year go on to PhD programs, out of a typical entering class of 15; this must be one of the highest proportions of any economics MA program in the country.

We also have many students who come here not as a step toward further study, but to strengthen their work in journalism, public policy, advocacy or electoral politics. People who have studied economics at John Jay include Kate Aronoff, author of Overheated: How Capitalism Broke the Planet, and now a columnist at The New Republic; Aída Chávez, former staff writer for The Intercept and DC correspondent for The Nation, and now communications director at Just Foreign Policy; Jack Gross, editor of the online magazine Phenomenal World; Lauren Melodia, Director of Economic and Fiscal Policy at the Center for New York City Affairs; Rajiv Sicora, legislative director for the United Autoworkers; Anisha Steephens, Senior Policy Advisor for Racial Equity at the U.S. Department of the Treasury in the Biden administration; Nathan Tankus, author of Notes on the Crises, and research director of the Modern Money Network; and Paul Williams, founder and executive director of the Center for Public Enterprise.

Students in the John Jay economics program have also served as staff for a number of elected officials, including Congressman Jamaal Bowman, New York Assemblymembers Ron Kim and Julia Salazar, and New York City Councilmember Carlina Rivera. Other students have found work doing economic analysis at government agencies like the Bureau of Labor Statistics, where several of our former students now work.

Some of our students come into the program with undergraduate degrees in economics, but many do not. (We do require a BA of some kind.) Some come straight out of college, but many are older. All we ask is a willingness to work hard, and an interest in the larger questions that economics is meant to help save — a desire both to understand the world and to change it. Every year I am amazed at the seriousness, creativity, and commitment of our students, and the range of backgrounds and interests they bring to the program.

John Jay economic is not just an academic program, it’s a community. Students and faculty gather regularly for beer and conversation (usually in Brooklyn, where most of us live.) Next week we’ll be having our spring barbecue at a community garden, with speakers and bands. There are regular workshops and lectures. This is a department where you’ll find students and faculty not only working together on research projects, but organizing public events, hosting podcasts, writing op-eds, and speaking out against the war in Gaza. Quite often, our students go on to become our colleagues — many of our undergraduate class are taught by our former students, and unlike many departments, we try to include adjuncts and other contingent faculty in department governance as much as possible.

We’re also an unusually diverse department. While white men are heavily overrepresented in the economics profession nationally, we are proud that half of our faculty are women. In our early graduate cohorts, a majority of students were Black or Latinx, and a majority were women. While these proportions shift from year to year, we consistently have far more nonwhite and female and nonbinary students than most economics graduate programs. If valuing this makes us “woke,” we’ll wear that label with pride.

We are located in midtown Manhattan, near Columbus Circle, easily accessible by transit from anywhere in the New York metro area. All of our classes are in-person, and meet in the evening for one two-hour session per week. Twelve courses are required for graduation. Fulltime students normally take three classes per semester, and finish in two years. But students with heavier professional or personal obligations are welcome to attend part-time, taking fewer than three classes per semester and taking correspondingly longer to graduate.

While we can’t generally offer financial support, John Jay is very affordable compared with similar programs elsewhere. For New York State residents, tuition is $1,410 per course, or $8,460 per year for students taking the standard six courses. (The total cost is the same if you spread your coursework out over more years.) For comparison, tuition at the New School for Social Research, which also offers an economics MA with a strong heterodox component, is $7,320 per three-credit course — about five times as much.

For out of state students, our tuition is $2,565 per course. You need to have lived in New York State for one year to qualify for in-state tuition.

At this moment, it seems to me, the chance to study economics in a program that is both rigorous and engaged with radical politics, at an affordable public university in the heart of New York, is something that many people would be excited by. The problem is, the great majority of those people have no idea we are here. So I’m asking people to share this post. In particular, if you teach college students, please consider forwarding this message or a link to the John Jay Economics Department website to your department list.

Again, the department website is here, with more information. I’m always happy to talk with anyone considering applying; if you have any questions about the program, feel free to reach out to me at profjwmason@gmail.com.

Admission are open until the end of July. The application form is here. And, once more, if you know anyone who might be interested — a college senior thinking about graduate school; an activist or professional who wants a deeper knowledge of economics — and who lives in New York or would like to, please forward this to them.

At Barron’s: Trump’s Tariffs Are No Alternative to Free Trade

(I write a monthlyish opinion piece for Barron’s. This one was published there in April. My previous pieces are here.)

In recent decades, the main challenges to free trade have from organized labor and the political left.⁴ People of a certain age with left-of-center politics will remember the rallies against the World Trade Organization in Seattle, Washington, D.C., and Montreal.⁵

That President Donald Trump is now delivering anti-globalization puts leftist trade critics in an awkward spot. Some, such as Shawn Fain, the fiery president of the United Auto Workers Union, are embracing Trump’s message, even if they don’t care for the messenger. If tariffs will bring back good industrial jobs, then shouldn’t labor and its allies be in favor, regardless of who is proposing them?

Rebuilding U.S. manufacturing may be a legitimate goal—and, in principle, restrictions on imports might be part of the toolkit for accomplishing it, as people like Fain say. There are real problems with globalization. The Covid-19 pandemic revealed how brittle international supply chains can be; with the certainty of climate disruptions and the near-certainty of future conflicts between states, there’s a strong case that production would be more resilient if it was less dependent on key components from a few distant sources.

We shouldn’t overstate the case for manufacturing. Fast food workers in California are paid more than autoworkers in Alabama, and places like Pittsburgh have successfully transitioned from a local economy based on manufacturing to one based on health care and education. Still, Pittsburgh is the exception. In much of the country, stable, well-paying manufacturing jobs have been replaced with less secure, lower-paying ones—or with no jobs at all.

But it’s exceedingly unlikely that Trump’s protectionist policies will correct this. Important parts of the necessary toolkit to reshoring are not just missing, but being actively dismantled by his administration. And history suggests his “Liberation Day” tariffs look nothing like what you’d want if rebuilding industry was the goal.

The U.S. has, through much of its history, been a high-tariff country—the president isn’t wrong about that—and not just during the McKinley era. As historian Paul Bairoch⁶ puts it, the U.S. is the “mother country” of protectionism; the earliest arguments for protecting infant industries were put forward in 1791 by Alexander Hamilton, the first Treasury Secretary, in his Report on Manufactures. It’s worth looking back to that to think about what real industrial policy would look like.

“Protective duties” on imports are the first item on Hamilton’s agenda. (Though he also warns against “the vain project of selling everything and buying nothing.”) But look at what else he calls for: subsidies (“bounties”) for manufacturing; “encouragement of new inventions and discoveries”; and strict “regulations for the inspection of manufactured commodities” to maintain quality standards. He wants to steer credit to industry.⁷ He wants public investment in roads and canals. He calls not only for opening “every possible avenue for immigration from abroad,” but even for the government to pay the costs of “bringing from abroad workmen of a superior kind.”

Eighteenth-century language aside, this program is very similar to the playbook that successful late industrializers have followed, from 19th century Germany to 20th century Japan, Korea and Taiwan, to China today.

It’s also almost the exact opposite of the policies being followed by the Trump administration. The public investment that Hamilton called for, already in decline, is now in the crosshairs of DOGE. Regulations are being rolled back. And skilled foreign workers are hardly going to flock to a country where they risk deportation for their social media posts.

Ironically, one of the most compelling recent examples of a reindustrialization project gone right comes from Trump’s predecessor. The Inflation Reduction Act helped spark a historic surge in manufacturing investment, particularly in green energy. The Biden administration did make use of tariffs, to the dismay of some liberals. But the centerpiece of the IRA was subsidies, along with loan guarantees and measures to stabilize demand—perhaps the most important consideration for businesses considering investments in long-lived capital goods. Trump is promising to end the Biden-era Chips Act, which allocated tens of billions of dollars to support domestic semiconductor manufacturing.

The throughline from Hamilton to Biden is that industrial policy calls for a big, active state, prepared to deploy the full range of professional expertise—exactly what the current administration is against. There are, to be sure, principled arguments for a smaller government; but they don’t hold if your goal is to fundamentally reshape the economy.

Tariffs in isolation will do little to boost investment, especially when there’s no telling how long they will last. Major industrial projects take years to come online and may operate for decades. Tariffs that can be imposed by executive order can be removed by the order of the next executive, or the same one if he changes his mind. What rational business would consider a massive reorganization of supply chains to bring protection back to the U.S. in response to tariffs that might, depending which headline you read, be removed next week as part of a bilateral deal? What they need above all is certainty, which is the opposite of what Trump is providing.

Manufacturing, even more than other parts of the economy, is also dependent on imports. Where trade restrictions have been successfully used in industrial policy, they’ve strategically focused on protecting a few sectors, without limiting access to the inputs those sectors need. Again, Trump’s across-the-board tariffs approach does just the opposite.

In a different world, one could imagine a program of delinking from international trade that also offered the stability, support, and complementary public investment needed to rebuild U.S. manufacturing. In that world, we might have to struggle with hard tradeoffs between the benefits of onshoring production and the benefits of deeper global integration.

But that is not the world we live in. I sympathize with people who want to rescue the baby of industrial policy from the bathwater of the “Liberation Day” tariffs. But there are no babies in this particular bath.

Teachers and Workers

A while back I had an interesting conversation with my older son, who is in 7th grade. He was telling me about various new rules his school had introduced — like only two bathroom breaks per week per class — which, we agreed, did not make much sense. But then he added: It seems like the teachers also know that the rules don’t make sense. If you talk to them about it, it’s pretty clear that this is something that they’ve just been told they have to say. Then we all forget about it and they go back to teaching. It’s not like anyone is checking if they actually enforce it.

I’ve thought about this conversation now and then in recent months. It seems to encapsulate, in a small way, the professional autonomy that has somehow become one of the central political battlegrounds of our time.

Teaching is very hard to manage from the top down. As a teacher myself, I’ve often experienced this. There are all kinds of rules and standards that are announced from the top. But very little of what you do in the classroom can be effectively monitored. In reality, you teach your classes according to your own standards, and follow the rules that make sense to you.

This, I think, is why teaching is the quintessential public service. Which is something different from a public good.

Education is not well suited for market provision, for reasons that are probably obvious to most people reading this. It doesn’t produce a distinct commodity, that can be owned and exchanged. The product, such as it is, is almost impossible for the “consumer” to meaningfully evaluate. How do you know what you need to learn, before you’ve learned it? And of course there are externalities, economists’ favorite argument for public provision. The benefits from an educated population are broadly shared.

But the problem is not just that the product of education does not look like a commodity. The process is also a problem. Even if we think of teaching as just another form of production, it’s very difficult to rationalize it in the way that other kinds of work can be. You can’t standardize the inputs and conditions of production, which is the key to successful automation. Teachers have to make all kinds of decisions, on the spot, in unpredictable conditions. (Does this kid really have to go to the bathroom?) And there’s no straightforward way to say which decision is the right one. You have to rely on teachers to exercise their own judgement, and evaluating outcomes on the merits. Which means, fundamentally, relying on intrinsic motivation rather than external direction or uniform rules.

I’ve been teaching college for a dozen years now. Anyone who’s done this work knows how rewarding it can be when it goes well, and how agonizing it can be when it goes badly, and how hard you will work to do better. But none of these outcomes can be measured or enforced by a boss. Assessments are a joke, we all know that. The nature of the work is that the best you can do is make sure that teachers are motivated and have the resources they need — and, yes, get rid of the really bad ones — and then get out of their way.

This is not only true of teaching, though teaching is certainly among the largest and most visible forms of work that depend so strongly on the autonomy and intrinsic motivation of the worker. This characteristic, it seems to me, is a central, though seldom articulated, reason for public provision of all kinds.

I am, professionally, an economist. We economists, and economist-influenced policy people, are used to talking about public goods. We have a clear language for that. We are less used to talking about public provision.

It’s one thing to argue that government should ensure that everyone has access to education, or health care, or childcare. It’s a different, distinct argument to say that these things should be performed directly by public employees. This second argument hinges on the need for autonomous, intrinsically motivated decisions by the people doing the work. Intrinsic motivation is the opposite of incentives, indeed it requires insulation from them. It requires a space where the person doing the job can freely make decisions based on their own professional judgement — the space that things like civil service protections are precisely intended to preserve.

These questions are not limited to the public sector. They are the most politically salient there, at the moment, since the Trump-Musk regime is practically defined by attacks on the civil service.⁸ But the autonomy of workers within the production process exists in all kinds of settings, public and private; complete deskilling and perfect supervision are never possible. And this defines an axis of conflict, or a dimension of socialization, which is largely orthogonal to the question of public versus private ownership.

Even for-profit corporations depend on intrinsic motivation – people’ desire to do their jobs – and the recognition of the manager’s authority as legitimate. This is true wherever ongoing coordinated activity is required.

As a productive community and a polis, the corporation depends on what David Graeber calls “baseline communism”: the principle that when one member of a community needs or requests something within a normal range, another member will provide it without the need for any explicit reward or punishment. Within a workplace – even a rigidly profit-oriented one – tasks often must be performed by whoever is in a position to, and tools provided to whoever needs them. When one office worker asks another to use their stapler, the answer will not be “what’s in it for me?”. The guiding principle here is, from each according to their abilities, to each according to their needs.

A distinct but related category of intrinsic motivation is what the French historian Jules Michelet called “the professional conscience” – the disinterested desire to do one’s job well. Studies of people’s experience of the workplace reveal plenty of alienation and insubordination, but also a great deal of effort to carry out the work – whatever it may be – as well as possible, by its own standards.

Some degree of worker autonomy is always necessary for the routine functioning of production. But how much autonomy is always a site of conflict, often latent, occasionally acute.

This is a point emphasized by observant historians of socialism. George Eley, in his monumental history of the left in Europe Forging Democracy, emphasizes that in the great revolutionary upsurge that immediately followed the First World War, socialization meant something quite different from public ownership. The central goal of the movements that came to be known as “council communism,” in Germany and Italy in particular, was establishing workers’ control over the production process, regardless of formal ownership. Socialization in this context meant a change in the internal organization of the workplace, rather than a change in who exercised authority at the top. In Eley’s words:

The distinctiveness of revolutionary activity in 1917–23 lay in the workers’ councils… These ranged from unofficial strike committees developing larger political aims, like the shop stewards’ movements of Clydeside, Sheffield, or Berlin, to sophisticated revolutionary innovation, like the factory councils in Turin. In between came a rich assortment: the Ra ̈te in Germany and Austria, claiming functions of class representation in a locality; councils based in factories, firms, or other economic units; and local action committees for specific ends…

A new medium of working-class activity, councils differed from both socialist parties, which acted through parliamentary and state institutions, and unions, which worked on the capitalist economy’s given assumptions via the wage relation. … Stronger versions of the council idea were hostile to orthodox trade unionism and socialist electoralism, recoiling from the accepted model of separately organized, centralized, nationally focused political and economic movements. Instead, councils were based within production: inside the unit of production itself, in the factory, the plant, or the shop. Councils raised issues of industrial democracy, workers’ self-management, and workers’ control.

Unlike unions, councils were not imagined as vehicles for collective negotiation with the boss over workers’ specific interests as workers — pay, working conditions, and so on. Rather, they were imagined as vehicles for replacing the boss and organizing the production process itself.

Council communism was a product of the breakdown of established hierarchies that followed the war; as a distinct movement, it was short-lived. But the axis of conflict it crystallized — over control of the production process, as opposed to workers’ interests as sellers of labor power — is very much still with us. And as teachers know as well as anyone, workplace autonomy needs to be defended from the state as well as from private employers.

One wouldn’t want to say there is no relationship between the two sense of socialization. The pursuit of profit creates powerful pressures for the erosion of workers’ control. While public ownership is not the same as workers’ control over production, it can be a shield for it where it already exists. As a CUNY professor, I am well aware of the benefits of an insulating layer of bureaucracy. Those of us in the classroom work very hard to produce learning in our students. People at the top of the institution have all kinds of ideas about how to change things, generally for the worse; but they usually bog down in thick layers of bureaucratic inertia before they can do much harm.

The social position of teachers and other professional employees has taken on new urgency since the election. One reason for this is that they are in the crosshairs of the right. But another reason is that the left is not sure how it feels about them, either.

A frequent topic in election post-mortems is the disproportionate share of votes the Democrats now get from the college-educated. In a typical exit poll, the split was almost exactly symmetrical: 56-42 for Harris among those with college degrees, 56-43 for Trump among those without.⁹ It’s a commonplace in these discussions, perhaps especially on the left, to contrast college-educated with working-class, as mutually exclusive categories.

Here for example is a Jacobin piece that treats the two categorizations as straightforwardly equivalent: “Donald Trump made substantial inroads among the working class in November. The best data currently available from AP VoteCast indicates that the Democrats’ share of non-college-educated voters fell from an already low 47% in 2020 to 43% in 2024. …. Democrats lost among working-class (noncollege) voters.”

As a factual matter, it is clearly true that Democratic voters in the US are increasingly found among those with higher education. Nor is this a phenomenon unique to the US. Thomas Piketty highlights it as a general phenomenon in his widely-quoted formulation of the “Brahmin left.”

But who exactly are the college-educated?

One way to answer this is to look at the US occupations with the greatest difference in employment as a share of those with college degrees, and those without. Count up those with degrees, subtract those without them, and you have your Brahmin occupations. If you do this exercise, number one on the list turns out to be nurses; number two is elementary school teachers, with secondary and college teachers a bit further down. If you add preschool teachers (0.5%), special-education (0.7%) and “other” teachers (0.7%) to the elementary and secondary teachers, about 10% of all American workers with college degrees are classroom instructors of some kind.

As a first approximation, then, when you talk about “college-educated voters,” who you are talking about is nurses and teachers. And if, like the person in Jacobin, you write “working-class (noncollege) voters,” what you are saying is that teachers (and nurses) are not members of the working class. Which presumably means that they are not workers.

Well, are teachers workers? My impression is that there is some uncertainty about this. And if not workers, then what?

The obvious answer is: Teachers are members of the professional-managerial class (PMC). Indeed, when Barbara and John Ehrenreich coined this term back in the 1970s, they offered teachers as the paradigm case.¹⁰

It’s interesting reading the Ehrenreichs’ essay today. Its starting point is the fact that “in the United States in the last two decades, the left has been concentrated most heavily among people who feel themselves to be ‘middle class’.” At that time, “the last two decades” would begin in the 1950s. The Brahmin left is evidently not a new development.

For the Ehrenreichs, PMC members like teachers are distinct from the working class because their work is about reproducing the existing social relations, rather than producing particular commodities. If we want to place someone in one or the other of these categories, we should ask: “Is their function required by the process of material production as such, or by capital’s concern for ruling and controlling the productive process?” On the face of it, this seems clear enough. But with a little more thought, we might wonder is this a distinction between teachers and nurses as opposed to real workers? Or does it rather reflect a dimension of all work under capitalism?

Not all off our useful and necessary activity can be embodied in discrete physical objects with clear property rights attached to them. And the maintenance of capitalist relations of domination and control are, it seems to me, fundamental to all kinds of work, not just that of a specialized group. We also might want to consider the distinction — elided in the Ehrenreich essay — between reproducing capitalist social relations specifically, and social reproduction in general. Surely the specialists in the former must include the police, and guard labor generally — but cops are seldom if ever who people have in mind when they talk about the PMC.

Consider the opposite end of the scale of occupations above — those that account for a disproportionately large share of those who don’t have college degrees, relative to those who do. Number one by this criterion is truck drivers, accounting for 3.6 percent of workers without a college degree and just half a percent of those without. Just behind them are cashiers, at 3.5 and 0.5.

Driving seems straightforwardly to be material production: a commodity located here is different from a commodity located there. But what about cashiers? They come into the story only once the process of material production is done with; as far as that is concerned, the users of commodities could simply claim them directly, if necessary leaving some record themselves. (You can still occasionally find this arrangement in small New England country stores.)

The cashier is needed not for production, but to ensure that the use-value is exchanged for an equivalent quantity of money. Surely, by the Ehrenreichs’ criteria, this is a perfect example of work that exists to maintain capitalist social relations, rather than anything to do with the needs of material production? But nobody, when they talk about the PMC, is thinking of cashiers.

The Ehrenreichs, in the 1974 essay, do offer a second criteria for membership in the PMC: a class, they write, is also defined by :a coherent social and cultural existence: members of a class share a common life style, educational background, kinship networks, consumption patterns, work habits, beliefs.” The problem, which they acknowledge but don’t really engage with, is that classes defined in this way don’t coincide with those defined by one’s role in production. It may perhaps be true (or perhaps not) that the spouses and parents of teachers are likely to be professionals rather than blue-collar workers; it may be true (though one shouldn’t take it for granted) that teachers have more in common culturally with property owners than with people who use their hands for a living.

My own experience teaching CUNY students suggests, for what it’s worth, that the Ehrenreichs were wrong on this point. My students, almost all non-white immigrants whose day jobs are as busboys and doormen and home health aides and taxi drivers, are immersed in the exact same culture as my own kids are. Culturally there is no difference my students and middle-class kids; the only difference is my students’ lack of economic security. To transpose the well-known quote: the poor are no different from you or me, except they have less money.¹¹

That is not how it looked to the Ehrenreichs. For them, the conflict between PMC and workers is the same kind of fundamental opposition as between workers and capitalists. “The relationship between the working class and the PMC, they write, “is objectively antagonistic.” To Marx and Engels’ classic list of historic oppositions — “freeman and slave, patrician and plebeian, lord and serf” the Ehrenreichs add “teacher and student, … social worker and client.”

As a teacher, I must admit that I am not sure that my relationship with my students is useful compared with that of a feudal lord to his serfs. (But then I wouldn’t think so, would I?) Again, one might note that the Ehrenrecichs — like later users of the PMC concept — don’t distinguish between the reproduction of specifically capitalist relations, and social reproduction in general. As a parent, am I producing labor power for the capitalist class? Well, yes. But I don’t think that is all I am doing.

Be that as it may, there do seem to be people who do seem to see professionals like teachers as the class enemy. Hostility to the PMC is particularly central to the left-right hybrid politics expressed in places like Compact, or American Affairs or in different forms by Vivek Chibber on the left and J. D. Vance on the right — what people sometimes call diagonalism.

We might also call it Wagenknechtianism, after its most distinctive practitioner in European politics. Sahra Wagenknecht herself justifies her eponymous party on the ground that she is the tribune of “the little people, those in small towns and villages, without university degrees, … the world beyond professional political life,” as against the “new, university-educated, professional class.”

One can’t disagree that there is a problem when political officials and activists become a small, self-contained group, when politics becomes simply a profession. (Though it’s a bit funny coming from someone like Wagenknecht, who has done nothing else in her life.) But this, it seems to me, is a different issue from the share of voters drawn from the college-educated. A professional politician is one thing; an elementary school teacher is something else.

Certainly teachers occupy an ambiguous role in contemporary capitalism. The PMC is one way of theorizing that. But one could also think of teachers as somewhat analogous to factory workers in semi-industrialized countries. Their strategic position does, objectively, make them relatively privileged compared with the majority of the population. But it also gives them a basis of social power. Both factory workers and teachers provide a useful service for the bosses. (That’s what the money is for.) But their distinctive work experiences can also build solidarity, embody anti-capitalist values, and prefigures alternative mode of social organization. This is, perhaps, as true of the work of teaching as it is of work in factories.

Somewhere in his prison writings, Antonio Gramsci describes a conversation with some Sardinian soldiers who were brought to Turin to help put down the great strikes of 1921. “What have you come to Turin for, he asked them. “We’ve come to shoot at some gentlemen who are going on strike.”

“But it’s not the gentleman who’re going on strike, it’s the workers, they’re poor people.”

“Here they’re all gentlemen: they wear collars and ties and earn 30 lire a day.”

Present-day professionals wear collars and ties; we make the contemporary equivalent of 30 lire a day. It’s hard not to be reminded of Jay Gould’s perhaps apocryphal claim that “I can hire one half of the working class to kill the other half.” In this context, Wagenknechtian talk about the professional class sounds like a job application.

People who talk about the PMC tend to be somewhere in the Marxist tradition. If we look to Marx as a political strategist rather than a class taxonomist, then his great insight was the need to link a positive program to some objective force able to advance it. Politics, from this point of view, is about giving conscious, organized form to the conflicts that already exist. Applying this insight today means recognizing that the lines of conflict are different than they were in Marx’s day.

Professional conscience is an important source of power for left. Our side cannot organize on basis of money. Money as an organizing principle works for a program of advancing or stabilizing the power of the bosses; it doesn’t work for a program of challenging that power. The power and prestige of technical expertise are, in principle, more amenable to a program of social transformation. The desire to do one’s job well is something that capitalism cannot do without. And that creates an alternative basis of solidarity and social power — the possibility of what Veblen long ago imagined as a “Soviet of engineers”, mobilized against the “sabotage” of production by the owning class.

A soviet of engineers may not sound very plausible at this moment, to you or me. But it’s worth recalling that to the lords of Silicon Valley, it seems very plausible. In a conversation with tech reporter Kara Swisher, Ezra Klein suggests that Musks role in the government, and the broader tech turn to the right, stems from the fact that “a lot of the C.E.O.s just hated their employees. And what radicalized them was that they had lost control of their companies, and they wanted that control back.”

You can say that CEOs had never lost control of their companies. You can say this claim, or Marc Andreessen’s even wilder claim that many tech companies “were hours away from full-blown violent riots … by their own employees” sounds paranoid and hysterical.

On one level, they are. But they also express something real. Professional employees — teachers, engineers, coders — necessarily have a degree of autonomy on the job, a space within which they decide what needs to be done. To that extent, the owners, when they need to make use of such employees, do indeed lose control of their companies. Professional norms, standards, credentials, skills — these are real sources of power for those of us who do the work, as against those who claim the results of it.

Historically it has always been relatively privileged workers who lead the opposition to the bosses. That’s who’s in a position to do it.

It is true that, today, voters for traditional parties of the left are disproportionately likely to be college-educated. But this is also increasingly true of union members. In the United States today, 47% of union members have college degrees, as opposed to 41% of the population as a whole. In the US today, there are one million union members in manufacturing. There are three million in education. You can say that’s a problem. You can also say, it’s a base we can build on.

Elon Musk and his peers hate their workers. They hate what they see as their unjustified power over production; unjustified, from their point of view, because it is not based on ownership. Whether it is based on skills or credentials or regulations or union membership doesn’t matter to them; in some contexts, arguably, it shouldn’t matter so much to us.

The overlap between professional workers like teachers and union members isn’t just an abstraction; in the past decade, a disproportionate number of strikes have been carried out by teachers. These strikes have been, like most strikes, demands for better pay and benefits. But they have also, to some large degree, been for what we, might call PMC-specific demands — the right to do one’s job properly, according to its own objective standards. Teachers want to be able to teach.

I think there is the possibility of a broader program here. I think the specific interests and experiences of professional-class workers can be generalized. I think there is a way that they, just like the interests and experiences of industrial workers, can represent society as a whole.

Autonomy in production may be a defining characteristic of the profession class, but it’s something that exists in all kinds of work to different degrees. Anybody who has a job that involves producing some concrete use value can weigh the standards implicit in that use-value, against whatever the bosses say.

The other day, for instance, a garbageman showed up at our house, a Brooklyn sanitation worker straight out of central casting. We’d put out an old mattress and bedspring. Apparently we had not followed the relevant disposal rules.

“It’s supposed to be completely covered in plastic,” the sanitation guy said. “The whole thing, like with Saran Wrap.”

Really?” I asked.

“Really,” he said. And then: “Ah, yeah, it’s a stupid rule. I’ll take it the way it is.”

The six year old was delighted to watch as the mattress and bedspring disappeared into the truck’s hydraulic press. Crunch, crrrrrunch, CRUNCH!

At Barron’s: The Cost of Living and the Cost of Money

(I write a monthlyish opinion piece for Barron’s. This one was published there in March 2025. My previous pieces are here.)

A lingering puzzle about inflation is why the public still seems so unhappy about it, even though it has, by conventional measures, returned to normal.

One explanation is that people are simply confused, or misled by the media. But another possibility is that what people think of as the cost of living doesn’t match up with the way that economists measure inflation. Maybe people aren’t wrong or confused, they are just paying attention to something different.

Inflation means a rise in the cost of goods and services. But not all your bills are for goods and services. Things like interest payments are also costs. And last fall’s election followed three years of steeply rising interest rates. The average mortgage rate, for example, was over 7%, compared with less than 3% in 2021

That is the explanation for the mismatch between official statistics and public perceptions offered in a fascinating recent paper by former Treasury Secretary Lawrence Summers and several co-authors, titled “The Cost of Money is Part of the Cost of Living.” In one especially dramatic finding, they suggest that if we take interest into account, year-over-year inflation peaked to 18% in 2022, rather than the official 9%, and was still 8% at the end of 2023, when the official rate was 3.3%.

I think the paper overstates its case. But it is still pointing to something real.

Conventional measures of inflation are supposed to reflect the prices of currently produced goods and services, but not asset purchases or financial transactions. But it isn’t always easy to know which payments are which. As a homeowner, you are buying both a place to live for the month, and an asset. In principle, the first should be counted in inflation, the second should not. But your single mortgage check includes both.

Today, the Bureau of Labor Statistics, which produces the country’s main inflation indicator, deals with this problem by imputing “owners equivalent rent.” In effect, we ask how much a homeowner would pay for their home, if they were renting it.

Before 1983, the BLS did things differently. Instead, it counted the full cost of home purchases, but only for houses bought in that period. Today’s measure estimates one month’s rent for all owner-occupied homes; the older method looks at the total cost of those homes purchased this month. Since houses are normally paid for with mortgages, that meant including interest payments that would be paid over many future years as part of this month’s price level. (To be exact, the BLS included future interest payments over half the length of the mortgage.)

Houses are a big part of consumption, so this difference isn’t a small detail. Summers and co-authors are absolutely right that when we compare inflation today to inflation in the 1970s, we aren’t comparing apples to apples. “Inflation” then meant something different than it does today.

An earlier paper by three of the same economists looked at historic inflation using the modern definition. They concluded that, when we measure consistently, the late-1970s inflation was no higher than the inflation during the pandemic.

The new article takes the opposite approach, and applies the pre-1983 definition to the recent inflation. This is a bit odd, given the strong and convincing criticism of the old methodology in the earlier article. Nonetheless, the results are striking. If people were experiencing inflation at double the official rate, no wonder they were upset!

In my opinion, the authors had it right the first time. There are good reasons the BLS abandoned its old approach. By including future interest payments on homes purchased in the current month, the old methodology greatly exaggerates the impact of interest rate changes. You can reasonably say that the mortgage payments you will make a decade from now are part of the price of your house, but they are not in any meaningful sense part of your cost of living today.

That said, it does make sense that interest payments contribute to people’s experience of price increases. But how much? As a back of the envelope guess, we can observe that household interest payments grew from an annualized $600 billion in the last quarter of 2020 to over $1 trillion by the end of 2023. Those payments grew twice as fast as nominal consumer spending. If we add these interest payments to the cost of the consumption basket, then we find that the 2021-2022 increase in inflation was as much as two points greater, and inflation in 2024 remained about half a point higher than by conventional measures.

It seems to me that if you take seriously the idea that financing is part of the cost of goods and services, you can plausibly conclude that people were experiencing an inflation rate of 3% to 3.5% last fall, rather than the 2.5% to 3% percent reported by the BLS. That isn’t trivial. But I’m not sure it’s the sort of difference that elections turn on.

Still, Summers and his co-authors are pointing to something real and important. The cost of money is part of the cost of living. When the Federal Reserve aggressively raised rates over 2022-2023, it may – or may not! – have helped bring down inflation. But it definitely made it harder for families, and businesses, to service their debts. Monetary policymakers would do well to keep that second impact in mind in the future, along with the first.

Negative Nowcast

In recent days, there has been a good deal of discussion in the business press and on economics Bluesky about the Atlanta Federal Reserve Bank’s “nowcast” of GDP for the first quarter of 2025. The suggestion is that the US may already be entering a recession.

The first quarter of 2025 is, of course, ongoing; strictly speaking, 2025Q1 GDP has not happened yet. But the Atlanta Fed’s GDPNow series tries to estimate what GDP for the quarter will turn out to be, based on data that is available before the official first release of GDP numbers at the start of the following month.

The Atlanta Fed has been producing these estimates since 2011. The reason this one got so much notice is that it shows “real” (inflation-adjusted) GDP this quarter declining at an annual rate of -2.8 percent, the second lowest value its shown since they started producing it. (The lowest, of course, was for 2020Q2.)

This is obviously significant as an indicator. I think that it does incorporate genuine information about what’s going in the world, and means broadly what it seems to mean. But I want to point out an important caveat, which both suggests we shouldn’t take this number at face value and raises some interesting questions about how we measure the economy.

The Atlanta Fed’s forecast implies a decline in growth of 5.1 points relative to the 2.3 points of inflation-adjusted growth in the fourth quarter of 2024.¹² If you dig into the Atlanta Fed’s numbers a bit, you’ll find that a large part of this is consumption spending, which is projected to be essentially flat this quarter, after contributing 1.5-2 points of growth in each recent quarter. An even larger contribution, however, comes from imports, which added 0.17 points to GDP growth last quarter but are projected to subtract 3.27 points this quarter.

You can see this below, showing the contribution of each component to “real” growth in recent quarters. The last column is the Atlanta Fed’s estimate for the current quarter.

Annualized contributions to real GDP growth

The fall in consumption spending, and the zero real growth in investment spending, represent, I think genuine developments in the world. But I find it impossible to take the imports number at face value.

By the conventions of the national accounts, imports are a subtraction from GDP. So the big negative bar on the right of the figure represents a rapid growth in imports – close to the fastest import growth, in fact, in US history. But in real economies, imports almost always rise when GDP growth is strong, and fall when GDP growth is weak. The prediction that we will have an almost-unprecedented slowdown in growth alongside and almost-unprecedented rise in imports doesn’t fit the historical experience.

Here, for example, is another version of Figure 1, but covering the period of the last major recession in the US, in 2008-2009. Notice how when investment spending (and GDP, though it’s not shown) fall through the floor in the second half of 2008, the contribution of imports turns sharply positive, indicating lower imports. Then when consumption and investment spending begin to rise again, making a positive contribution to growth, the import contribution turns negative. This is the usual historical pattern.

The strong relationship between expenditure growth and imports is, I think, one of the most basic and reliable Keynesian facts about the world. Countries import more when they grow faster, and import less when they grow more slowly or shrink. In the long run, yes, relative prices and competitiveness more broadly may be important. But in the short run of a few years or quarters, income is what matters.

Given this strong Keynesian prior, I have a lot of trouble accepting the Atlanta Fed’s nowcast that we are seeing very weak GDP growth but very rapid import growth. It’s not impossible, but it’s certainly very strange.

Here’s a figure, going back to 1947, showing annualized quarterly “real” GDP growth rates and the contribution of imports. The Atlanta Fed’s estimate for the current quarter is the large red dot in the lower left. As you can see, it’s not entirely out of line with the historical experience. But it would certainly be an outlier. The great majority of quarters with import growth even close to this saw exceptionally strong GDP growth.

An accounting point: When we teach the national income identity — Y = C + I + G + X – M — we present it as if M was a distinct category of spending. But it really isn’t. Final spending by every unit in the economy falls into one of the other four categories. -M is there to subtract the imported component of the other spending categories. This matters here, because it means it is impossible for anyone to simply import more, without also doing more of one of the other categories. Even if imported materials are just stockpiled in a warehouse, that is inventory investment, at least from the point of view of the national accounts.

Over time, of course, imports might rise independently of other components, if the fraction of imported inputs used to produce consumption or investment or export goods changed. But these are changes that happen only gradually. In the short run, it’s impossible for anyone to spend more on imports without also spending more on something else. And in practice, again, import spending reliably rises when total spending rises, and falls when total spending falls. (The relationship in the figure would look much closer if I used annual data.) A deep recession with a dramatic rise in import spending — what the Atlanta Fed’s numbers imply — is well outside the historic experience.

So what is really going on?

The Atlanta Fed is looking at genuine data. The high import numbers reflect more stuff being declared at US ports; the consumption numbers reflect lower grocery store receipts.

One natural way to make sense of it is that this is a surge of imports as businesses try to get ahead of Trump’s tariffs. Normally, imports are a reasonably stable share of current spending. But in this case, the imported part of future spending has been moved forward to this quarter.

Now, in principle, if this what’s going on, then the higher imports should be balanced by an increase in inventory investment — accumulation of raw materials and goods in process — with no effect on GDP. But the Atlanta Fed is assembling its data from a variety of different sources; there’s no reason to expect it to conform to the accounting relationships that final GDP has to. If, let’s say, trade data comes in sooner than inventory data — which seems very plausible — then it will look instead like the import share of other categories of spending is increasing. Which would be a subtraction from GDP.

To be clear: I think this is fine. Consistency and transparency are very valuable qualities in public data; they shouldn’t be lightly sacrificed even where some one-off adjustment will clearly yield a better point estimate. I think the Atlanta Fed is right to apply their methods consistently, even if they result in implausible results in this particular case.

There is, though, another intriguing possibility.

A research report from Goldman Sachs¹³ suggests that the apparent rise in imports is to some significant extent due to a rise in imports of monetary gold. The Goldman Sachs analysts write:

most of the widening in the trade deficit since November has been driven by higher gold imports … as participants in the gold market sought to insure themselves against potential tariffs on gold. Although this may seem like a frontloading effect ahead of potential tariffs, these imports are for the most part … being shipped to the US on the off-chance that physical delivery of the gold is required,… Importantly, the Bureau of Economic Analysis (BEA) excludes most gold imports when calculating the imports component of GDP. ….

The same reasoning applies more generally to front-loading by retailers, wholesalers, and producers ahead of tariff increases. Because these developments are unrelated to US production, they should have little net effect on US GDP. In the case of non-gold goods, higher imports should be offset by higher inventories in the national accounts. In practice, it is possible that front-loading exerts a modest drag on reported GDP because imports… tend to be measured more accurately than inventories. We suspect this dynamic is playing out now to some extent… But because front-loading these imports now implies fewer imports later, we think the net effect on 2025 GDP growth should be small.

Again: in the conventions of the national accounts, if businesses buy extra foreign inputs today in order to avoid higher costs later, that should, in principle, be recorded in the national accounts as equal increases in imports and inventory investment, with no net effect on GDP. But if the rise in imports is observed earlier or more accurately that the rise in inventory investment, we will see a spurious decline in GDP.

But what about the point about gold specifically, that the BEA excludes gold imports when calculating the import component of GDP? This is not something I’d ever really thought about or even been aware of. But having now poked around a bit, yes, this is correct. Gold imports show up in the trade data because, of course they do. It’s a good crossing the international border. But monetary gold, gold held as an asset, does not show up in the imports (M) shown in the National Income and Product Accounts, because the NIPAs are organized to track production, and gold held as an asset is not being used in production.

This is a very interesting accounting issue — in fact it’s what motivated me to write this post.

National accounting always faces the fundamental question of the production boundary. Which activities are part of production, and which ones aren’t? GDP (and its subsidiary components, like M) is supposed to be a sum of payments for new production. It’s not supposed to include payments for transfer of ownership of existing assets. But this is not always a clean distinction.

Gold is a weird commodity in this context, because it is both an important input to production (of both industrial equipment and jewelry) and an asset held for its own sake. In principle, when gold is unloaded from a ship and put into a warehouse, there’s no way to know whether it is destined to be an input to the production of some consumption good or piece of industrial equipment, or if it is being held as an asset. Maybe at that moment it hasn’t even been determined.Gold is gold.¹⁴

What the BEA does — this is interesting — is to take the difference between US use of gold as a production input and US production of gold, and call that imports of gold for purposes of the NIPAs. The difference between the actual net imports of gold and this number is assumed to be monetary gold. In practice, domestic production and use seem to be pretty close, so NIPA gold imports stay close to zero regardless of what the trade figures show. This procedure seems reasonable enough.

It’s not clear to me if monetary gold imports explain the whole story of the Atlanta Fed’s strange rise in imports, or just a part of it. The way the data is presented the Goldman Sachs report makes it hard to compare magnitudes. But it is true, on the one hand, that a surge in imports ahead of the tariffs not informative about GDP growth this quarter. And on the other hand, the treatment of gold imports in the national accounts raises some profound issues, whether or not it fully explains the apparent import surge.

The fundamental challenge with gold is that is both an important input to production, and an important asset in its own right. This is a challenge for our accounting framework that relies on a sharp line between payments related to production and asset sales. Gold is hardly unique in that respect.

A very analogous and more generally important case is housing. When a family buys a home, they are buying both a flow of consumption (the use value of living in that house) and an asset (the exchange value they can receive by selling the house, or borrowing against it).

Conceptually, these are two different purchase. But in reality, the homeowner is writing only one check. This is a big problem both substantively and for data. Substantively — well, this goes beyond the scope of this post, but the fact that people’s providing for their own housing needs also involves taking a position in a speculative asset has some pretty far-reaching effects on our society. From a data standpoint: How are we going to split the one payment of the homeowner into the part that is paying for the use of the hoser right now, and the part that is paying for the chance to profit from the appreciation of the house? It’s not an easy question.

Returning to the Atlanta Fed GDPNow estimates. It’s worth emphasizing that the estimate of zero real growth inc consumption spending, which doesn’t have any practical or conceptual problems as far as I can tell. So even if we set aside the import question, there is reason to say that real-time economic data suggest a sharp slowdown in spending — and therefore output, income and employment — relative to the recent trend. I think we should take that forecast seriously directionally, even if there is reason to be skeptical of the dramatic fall in GDP that they forecast.

If we set aside the import numbers, the estimate is real growth for the quarter of close to zero. Which would still be a sharp slowdown, and lead us to expect a significant rise in unemployment.

At the same time, we should keep in mind — always, and perhaps even more now — that numbers like GDP are not material facts existing out there in he world. They are the result of aggregating an enormous number of private payments in a specific way, which involve a great number of more or less arbitrary choices. If we don’t understand how the numbers are constructed, we will not be able to say much about what they mean.

ETA: Thanks to David Rosnick for helping me think through this.

Democratizing Finance

(This is the text of a talk I gave for a workshop organized by the International Network for Democratic Economic Planning. The video of the conference is here.)

The starting point for this conversation, it seems to me, is that planning is everywhere in the economy we already live in.

There’s a widespread idea that production today is largely or entirely coordinated by markets. This idea is ubiquitous in economics textbooks, of course; it also forms a major part of unspoken economic common sense, even for many socialists and others on the left politically. But it seems to me that when you look at things more critically, the role of market coordination in the economies that we live in is in fact rather limited.

Within the enterprise, markets are almost nonexistent. Production is organized through various forms of hierarchy and command, as well as through intrinsic motivation — what David Graeber calls everyday communism or what we might call the professional conscience — the desire to do one’s job well for its own sake.

The formation, growth and extinction of enterprises, meanwhile, is organized through finance. People sometimes talk about firms growing and dying through some kind of Darwinian process, but the function of finance is precisely to prevent that. By redistributing surplus between firms, finance breaks the link between the profits a firm earned yesterday and the funds available for it to invest today.

The whole elaborate structure of banks, stock markets, venture capital and so on exists precisely to make funds available for new firms, or firms that have not yet been profitable. We see this very clearly in Silicon Valley, as in the current boom in “AI” investment — this is as far as you can get from a world where growth is the result of past profits.

On the other side, institutions like private equity, and the market for corporate control, ensure that that the surplus generated in one firm need not be reinvested there. It can be extracted — consensually or otherwise — and used somewhere else.

In both cases, this is not happening through any kind of automatic market logic, but through someone’s conscious choice.

Once we think of finance as a system of planning , it is natural to ask if it can be redirected to meet social needs, such as addressing climate change. I want to make four suggestions about how we can pursue this idea most effectively.

First. We need to think about where financing constraints matter, and where they don’t.

Many firms do fund investment largely from their own profits; in others, investment spending is modest relative to current costs. In both these cases — where investment is internally financed, and where investment requirements are low relative to costs of production — finance will have limited effects on real activity.

Where finance is most powerful is in new or rapidly growing, capital-intensive sectors, especially where firms are relatively small. Green energy is an important example — for wind or solar power, almost all the costs are upfront. Housing is also an area where finance is clearly important – while this is of course, a very old sector, firms are relatively small, capital costs are large, assets are very long-lived, and there is a significant lag between outlays and income. It is clear that booms and busts in housing construction have a great deal to do with credit conditions.

Labor intensive sectors like care work, on the other hand, are poor targets for credit policy, since costs and revenues occur more or less simultaneously, and capital needs are minimal. Subsidies or other “real” interventions are needed here.

Large, established firms are also likely to be fairly insensitive to credit policy. There’s a great deal of evidence that the internal discount rates corporations use to evaluate investment projects are not tightly linked to interest rates. At best, financing may relax an external constraint where decision makers already operate with long horizons. But what we know about corporate investment decisions suggests that they are not much affected by credit conditions — something that thoughtful central bankers have long understood.

Second. Channeling credit to constrained areas will have a bigger impact than penalizing credit to unwanted areas.

This seems like an important limitation on the types of green policies adopted by the ECB, for example. For firms that issue bonds, the interest rate they face is not likely to be a major factor in their investment decisions. Where credit matters most is for smaller, bank-dependent firms and households, which face hard limits on how much they can borrow.

This is even more the case for the stock market. Firms for which stock issuance is a significant form of financing make up a very, very small group. In general, changes in stock ownership will have no effect on real investment at all.

Related to this is the question of rules vs discretion. It is relatively easy to write rules for what not to invest in. Targeting finance-constrained sectors requires more strategic choices. So this is an instrument that is state-capacity intensive. In a setting of limited capacity, credit policy is unlikely to work well.

Similarly, if we want to see across-the-board changes, as opposed to fostering new growth in particular areas, credit is not the right tool. In that case it is better to directly regulate the outcomes we are interested in. If you want higher wages, write a minimum wage law. Don’t tell your central bank to penalize holdings of shares in low-wage firms.

Third. We need to think carefully about what parts of finance we want to socialize, and where new institutions are needed and where they aren’t.

Various financial institutions offer funding to real activity (directly or indirectly) on their asset side, while issuing liabilities that some particular group of wealth owners wants to hold. In the case of many institutions — banks, insurance companies, pension funds — their social value comes as much or more from the distinctive liabilities they issue, as from the activities that they finance.

It’s natural to imagine public finance in similar terms, and think of a public investment authority, say, issuing distinctive liabilities that are somehow connected to the activities that it finances. I think we need to tread very cautiously here. The connections between the two sides of private balance sheets are largely irrelevant for the public sector.

The public sector already finances itself on the most favorable terms of any entity in the economy. The private sector’s need for retirement security and other forms of insurance can be addressed by the public sector directly. Public provision of new assets for retirement saving would be a step backward from current systems of public provision.

There is a case for a larger public role in the payments system, and in the direct provision of banking services to those who currently lack access to them. But there is no reason to link this service provision to public credit provision, and a number of good reasons not to.

The stronger arguments for socializing finance, it seems to me, lie on the asset side of the public-sector balance sheet. We don’t need to find new ways of financing things the public already does. We do need to bring public criteria into the financing of private activity.

It’s worth emphasizing that what matters is what gets financed, and on what terms. Who owns the assets has no importance in itself. Setting up a sovereign wealth fund does nothing to socialize investment, if the fund is operated on the same principles as a private fund would be.

I observed this first-hand some years ago, when I worked in the AFL-CIO’s Office of Investment. The idea was to use the substantial assets of union-affiliated pension funds to support labor in conflicts with employers. But in practice, the funds were so constrained both by legal restrictions and by the culture of professional asset management that it was effectively impossible to depart from the conventional framework of maximizing shareholder value.

Fourth. We need to link proposals for socializing finance to a critique of conventional monetary policy. We need to challenge the sharp lines between planning, prudential regulation, and monetary policy proper. In reality, every action taken by the central bank channels credit towards some activities, and away from others.

One important lesson of the past 15 years is the limits of conventional monetary policy as a tool for stabilizing aggregate demand. But central banks do have immense power over the prices of various financial assets, and monetary policy actions have outsized effects on credit-sensitive sectors of the economy. A program of using credit policy for what it can do — fostering the growth of particular new sectors and activities — goes hand in hand with not using credit policy for what it cannot do — stabilizing inflation and employment. In this sense, socializing finance and developing alternative tools for demand management are complementary programs. Or perhaps, they are the same program.

It’s worth noting that Keynes was very skeptical of the sort of fiscal policy that has come to be associated with his name. He did not believe in running large fiscal deficits, or boosting demand via payments to individuals. For him, stabilizing demand meant stabilizing investment spending. And this meant, above all, reorienting it way from future profitability, which is inherently unknowable, and beliefs about which are therefore ungrounded.

This is a key element in the Keynesian vision that is often overlooked: Our inability to know the future matters less when we are focused on providing concrete social goods. It may be very hard, even impossible, to know how much the apartments in a given building will rent for in thirty years, depending as it does on factors like the desirability of the neighborhood, how much housing is built elsewhere, and the overall state of the economy. But how long the building will stand up for, and how many people it can comfortably house, are questions we can answer with reasonable confidence.

Wouldn’t it be simpler, then, to stabilize private demand in the first place, rather than try to offset its fluctuations with changes in the interest rate or public budget position? From this point of view, our current apparatus of monetary policy would be rendered unnecessary by a program of reorienting investment to meet real human needs.

UPDATE: I have added a link to the video of the conference.