Tag: politics

At Dissent: Industrial Policy without Nationalism

(This piece was published in the Fall 2024 issue of Dissent.)

In the first two years after Biden’s election, there was considerable enthusiasm on the left for the administration’s embrace of a larger, more active economic role for the federal government. I was among those who saw both the ambitions of the Build Back Better bill and the self-conscious embrace of industrial policy as an unexpectedly sharp break with the economic policy consensus of the past thirty years.

Biden squandered that early promise with his embrace of Israel’s campaign of mass murder in Gaza. His legacy will be the piles of shattered buildings and children’s corpses that he, with aides like Antony Blinken, did so much to create.

The administration has also struck a Trumpian note on immigration, promising to shut down the border to desperate asylum seekers. And internationally, it is committed to a Manichean view of the world where the United States is locked into a perpetual struggle for dominance with rivals like Russia and China.

Can industrial policy be salvaged from this wreckage? I am not sure.

There are really two questions here. First, is there an inherent connection between industrial policy and economic nationalism, because support for one country’s industries must comes at the cost of its trade partners? And second, is it possible in practice to pursue industrial policy without militarism? Or does it require the support of the national security establishment as the only sufficiently powerful constituency in favor of a bigger and more active government?

Much of the conversation around industrial policy assumes that one country’s gain must be another’s loss. U.S. officials insist on the need to outcompete China in key markets and constantly complain about how “unfair” Chinese support for its manufacturers disadvantages U.S. producers. European officials make similar complaints about the United States.

This zero-sum view of trade policy is shared by an influential strand of thought on the left, most notably Robert Brenner and his followers. In their view, the world economy faces a permanent condition of overcapacity, in which industrial investment in one country simply depresses production and profits elsewhere. In the uncompromising words of Dylan Riley, “the present period does not hold out even the hope of growth,” allowing only for “a politics of zero-sum redistribution.” Development, in this context, simply means the displacement of manufacturing in the rich countries by lower-cost competitors.

I don’t know if anyone in the Biden administration has read Brenner or been influenced by him. But there is certainly a similarity in language. The same complaints that Chinese investment is exacerbating global overcapacity in manufacturing could come almost verbatim from the State Department or from the pages of New Left Review. More broadly, there is a shared sense that China’s desire to industrialize is fundamentally illegitimate. The problem, Brenner complains, is that China and other developing countries have sought to “export goods that were already being produced” instead of respecting the current “world division of labor along Smithian lines” and focusing on exports complementary to existing industries in the North.

Fortunately, we can be fairly confident that this understanding of world trade is wrong.

The zero-sum vision sees trade flows as driven by relative prices, with lower-cost producers beating out higher-cost ones for a fixed pool of demand. But as Keynesian economists have long understood, the most important factor in trade flows is changes in incomes, not prices. Far from being fixed, demand is the most dynamic element in the system.

A country experiencing an economic boom – perhaps from a upsurge in investment – will see a rapid rise in both production and demand. Some of the additional spending will falls on imports; countries that grow faster therefore tend to develop trade deficits while countries that grow slowly tend to develop trade surpluses. (It is true that some countries manage to combine rapid growth with trade surpluses, while others must throttle back demand to avoid deficits. But as the great Keynesian economist A.P. Thirlwall argued, this is mainly a function of what kinds of goods they produce, rather than lower prices.)

We can see this dynamic clearly in the United States, where the trade deficit consistently falls in recessions and widens when growth resumes. It was even more important, though less immediately obvious, in Europe in the 2000s. During the first decade of the euro, Germany developed large surpluses with other European countries, which were widely attributed to superior competitiveness thanks to wage restraint and faster productivity growth. But this was wrong. While German surpluses with the rest of the European Union rose from 2 percent to 3 percent of German GDP during the 2000s, there was no change in the fraction of income being spent in the rest of the bloc on German exports. Meanwhile, the share of German income spent on EU imports actually rose.

If Germans were buying more from the rest of the European Union, and non-German Europeans were buying the same amount from Germany, how could it be that the German trade surplus with Europe increased? The answer is that total expenditure was rising much faster in the rest of Europe. Rising German surpluses were the result of austerity and stagnation within the country, not greater competitiveness. If Germany had adopted a program to boost green investment during the 2000s, its trade surpluses would have been smaller, not larger. The same thing happened in reverse after the crisis: the countries of Southern Europe rapidly closed their large trade deficits without any improvement in export performance, as deep falls in income and expenditure squeezed their imports. 

Europe’s trade imbalances of a decade ago might seem far afield from current debates over industrial policy. But they illustrate a critical point. When a country adopts policies to boost investment spending, that creates new demand in its economy. And the additional imports drawn in by this demand are likely to outweigh whatever advantages it gains in the particular sector where investment is subsidized. Measures like the Inflation Reduction Act (IRA) or CHIPS and Science Act may eventually boost U.S. net exports in the specific sectors they target. But they also raise demand for everything else. This is why a zero-sum view of industrial policy is wrong. If the US successfully boosts investment in wind turbine production, say, it will probably boost net exports of turbines. But it will also raise imports of other things – not just inputs for turbines, but all the goods purchased by everyone whose income is raised by the new spending. For most US trade partners, the rise in overall demand will matter much more than greater US competitiveness in a few targeted sectors.

China might look like an exception to this pattern. It has combined an investment boom with persistent trade surpluses, thanks to the very rapid qualitative upgrading of its manufacturing base. For most lower- and middle-income countries, rapid income growth leads to a disproportionate rise in demand for more advanced manufactures they can’t make themselves. This has been much less true of China. As economists like Dani Rodrik have shown, what is exceptional about China is the range and sophistication of the goods it produces relative to its income level. This is why it’s been able to maintain trade surpluses while growing rapidly.

While Biden administration officials and their allies like to attribute China’s success to wage repression, the reality is close to the opposite. As scholars of inequality like Branko Milanovic and Thomas Piketty have documented, what stands out about China’s growth is how widely the gains have been shared. Twenty-first-century China, unlike the United States or Western Europe, has seen substantial income growth even for those at the bottom of the income distribution.

More important for the present argument, China has not just added an enormous amount of manufacturing capacity; it has also been an enormous source of demand. This is the critical point missed by those who see a zero-sum competition for markets. Consider automobiles. Already by 2010 China was the world’s largest manufacturer, producing nearly twice as many vehicles as the United States, a position it has held ever since. Yet this surge in auto production was accompanied by an even larger surge in auto consumption, so that China remained a net importer of automobiles until 2022. The tremendous growth of China’s auto industry did not come at the expense of production elsewhere; there were simply more cars being made and sold.

All this applies even more for the green industries that are the focus of today’s industrial policy debate. There has been a huge rise in production—especially but not only in China—but there has been an equally huge growth in expenditure. Globally, solar power generation increased by a factor of 100 over the past fifteen years, wind power by a factor of ten. And there is no sign of this growth slowing. To speak of excess capacity in this sector is bizarre. In a recent speech, Treasury Under Secretary Jay Shambaugh complained that China plans to produce more lithium-ion batteries and solar modules than are required to hit net-zero emissions targets. But if the necessary technologies come online fast enough, there’s no reason we can’t beat those targets. Is Shambaugh worried that the world will decarbonize too fast?

Even in narrow economic terms, there are positive spillovers from China’s big push into green technology. China may gain a larger share of the market for batteries or solar panels — though again, it’s important to stress that this market is anything but fixed in size — but the investment spending in that sector will create demand elsewhere, to the benefit of countries that export to China. Technological improvements are also likely to spread rapidly. One recent study of industrial policy in semiconductors found that when governments adopt policies to support their own industry, they are able to significantly raise productivity – but thanks to international character of chip production, productivity gains are almost as large for the countries they trade with. Ironically, as Tim Sahay and Kate Mackenzie observe, the United States stands to lose out on exactly these benefits thanks to the Biden administration’s hostility to investment by Chinese firms.

None of this is to say that other countries face no disruptions or challenges from China’s growth, or from policies to support particular industries in the United States or elsewhere. The point is that these disruptions can be managed. Lost demand in one sector can be offset by increased demand somewhere else. Subsidies in one country can be matched by subsidies in another. Indeed, in the absence of any global authority to coordinate green investment, a subsidy race may be the best way to hasten decarbonization.

As a matter of economics, then, there is no reason that industrial policy has to involve us-against-them economic nationalism or heightened conflict between the United States and China. As a matter of politics, unfortunately, the link may be tighter.

They are certainly linked in the rhetoric of the Biden administration. Virtually every initiative, it now seems, is justified by the need to meet the threat of foreign rivals. A central goal of the CHIPS Act is to not only reduce U.S. reliance on Chinese imports but to cut China off from technologies where the United States still has the lead. Meanwhile arms deliveries to Ukraine are sold as a form of stimulus. This bellicose posture is deeply written in the DNA of Bidenomics: before becoming Biden’s national security advisor, Jake Sullivan ran a think tank whose vision of “foreign policy for the middle class” was “Russia, Russia, Russia and China, China, China.”

Thea Riofrancos calls this mindset the “security-sustainability nexus.” Is its current dominance in U.S. politics a contingent outcome—the result, perhaps, of the particular people who ended up in top positions in the Biden administration? And if so, can we imagine a U.S. industrial policy where the China hawks are not in the driver’s seat? Or is the political economy of the United States one in which only a Cold War enemy can motivate a public project to reorient the economy?

In a recent paper, Benjamin Braun and Daniela Gabor argue for the second alternative. It is only “the salience of geopolitical competition” with China that has allowed the United States to go as far with industrial policy as it has. In the absence of much more popular pressure and a broader political realignment, they suggest, the only way that “green planners” can overcome the deep-seated resistance to bigger government is through an alliance with the “geopolitical hawks.”

Many of us have pointed to the economic mobilization of the Second World War as a model for a quick decarbonization of the U.S. economy through public investment. Wartime mobilization — the “greatest thing that man has ever done,” in the words of a contemporary Woody Guthrie song — offers an appealing model for decarbonization. It combines both the most rapid expansion and redirection of economic activity in U.S. history, and the closest the country has ever come to a planned economy. But given the already dangerous entanglement of industrial policy with war and empire, it’s a model we may not want to invoke.

On the other hand, the climate crisis is urgent. And the arguments that it calls for a more direct public role in steering investment are as strong as ever. It’s safe to say that neither the historic boom in new factory construction nor the rapid growth in solar energy (which accounts for the majority of new electrical generating capacity added in 2024) would have happened without the IRA. It’s easy to see how climate advocates could be tempted to strike a Faustian bargain with the national security state, if that’s the only way to get these measures passed.

Personally, I would prefer to avoid this particular deal with the devil. I believe we should oppose any policy aimed at strengthening the United States vis-à-vis China and flatly reject the idea that U.S. military supremacy is in the interest of humanity. An all-out war between the United States and China (or Russia) would be perhaps the one outcome worse for humanity than uncontrolled climate change. Even if the new Cold War can be kept to a simmer—and that’s not something to take for granted—the green side of industrial policy is likely to lose ground whenever it conflicts with national security goals, as we’ve recently seen with Biden’s tariffs on Chinese solar cells, batteries, and electric vehicles. The Democratic pollster David Shor recently tweeted that he “would much rather live in a world where we see a 4 degree rise in temperature than live in a world where China is a global hegemon.” Administration officials would not, presumably, spell it out so baldly, but it’s a safe bet that many of them feel the same way.

Adam Tooze observes somewhere that historically socialists often favored strictly balanced budgets — because they expected, not without reason, that the main beneficiary of lax fiscal rules would be the military. The big question about industrial policy today is whether that logic still applies, or whether an expansion of the state’s role in the economic realm can be combined with a diminution of its capacity for war.

URPE Statement on Gaza

I’ve been struggling to find something to say about the unfolding horror in Gaza. What is happening there is not war, but murder on an industrial scale. It is a conscious effort to bring about the deaths of tens or hundreds of thousands of human beings, and to permanently drive millions from their homes. It is the deliberate destruction of a whole society. And it is happening in full view of the world, with the enthusiastic support of the governments of the United States and most of Europe. We can’t look away from this. We have to say something, whether or not our words have any effect.

But I think they can have an effect. Israel depends on support — material and moral — from the US, and from other countries whose governments are more or less vulnerable to public pressure. (Perhaps it’s less dependent than it used to be, but less does not mean not at all.) Right now they have a free hand, but they won’t forever. Public opinion is clearly shifting, and the costs to other governments of their complicity are growing. There is a limited window within which the killing and displacement can continue, a window whose size depends on world opinion. Anyone with a public platform, however small, can try to help close it. The most important thing now is to demand an immediate ceasefire by Israel. If you can say that anywhere where people will hear you, then, in my opinion, that’s what you should say.

So I was very glad to see the Union for Radical Political Economics (URPE) put out a statement on Gaza that begins by expressing solidarity with the Palestinian people, and calls for an immediate ceasefire as its first demand. URPE is as far as you can get from being an important geopolitical player. But it’s my own professional home, so it matters to me, and I’m sure to a number of readers of this. It’s also an organization founded on the principle that economists and social scientists cannot be dispassionate technicians and observers, but have a responsibility to take sides in the struggles of our times. It’s good to see that, after some initial hesitation, they lived up that commitment here.

The statement is below. It’s a good statement. I endorse all of it.

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We stand in unwavering solidarity with the Palestinian people. Since October 7th, 2023, over two million people have faced a brutal onslaught by the Israeli military and state. They have been forced to flee with nowhere to go as homes, shelters, evacuation routes, border crossings, hospitals, places of worship and entire neighborhoods have been bombed.

We mourn civilian deaths in both Israel and Palestine. Israel’s retaliation for the October 7th incursion continues, however, and over 9,000 Palestinians have been killed in the ongoing assault so far.  The estimated number of children among the casualties is over 3,000 and UNICEF estimates that about 420 children have been killed or wounded daily. Even reporters have been threatened with violence or killed.

Since the Nakba 75 years ago, the Palestinian people have endured profound suffering, forced displacement, and a brutal 16-year-long inhumane siege and blockade in Gaza. Human rights organizations have characterized Gaza as ‘the largest open-air prison’.

We also condemn the role of the U.S. state in supporting the ongoing siege in Palestine, its support for the horrors inflicted on Gaza, and its refusal to support a humanitarian ceasefire. It is imperative that we do not turn our backs on the devastating impact of this violence on people’s lives. The fight for Palestinian liberation and a fair, enduring peace in the region is intricately linked with the liberation and resistance efforts spearheaded by indigenous, colonized, and oppressed communities historically and worldwide.

We stand in support of efforts by the Palestinian people to sustain themselves economically through control over their land and their labor. We stand in solidarity with the anti-Zionist Jewish communities that have been raising their voices against the carpet bombing of Gaza, for the liberation of the Palestinian people, and who are working for a just, equitable, and durable peace.

We urgently call for:

(1)    An immediate ceasefire

(2)    Immediate restoration of food, fuel, water, and electricity to the Gaza Strip

(3)    Cessation of all settlement activity and disarmament of all settlers

(4)    Immediate delivery of humanitarian aid on the scale required

(5)    Respect towards the Geneva Conventions by all parties concerned

(6)    An end to apartheid and strident moves toward a democratic future for all people regardless of race, religion, gender identity and nationality

In addition, we strongly uphold the principle of academic freedom, especially in light of the current global climate where individuals in educational institutions worldwide face termination, doxing, and harassment for speaking up against the atrocities of the Israeli state and in support of the civilian population in Gaza. Neglecting this commitment would be a betrayal of our scholarly and moral obligations.

At Barron’s: With the Debt Ceiling Deal, the Administration Takes a Step Backward

(I write a monthly-ish opinion piece for Barron’s. This is my most recent one. You can find earlier ones here.)  

Since the onset of the pandemic, policy makers in the U.S. and elsewhere have embraced a more active role for government in the economy. The extraordinary scale and success of pandemic relief, the administration’s embrace of the expansive Build Back Better program, and the revived industrial policy of the Inflation Reduction Act and the Chips and Science Act all stand in sharp contrast with the limited-government orthodoxy of the past generation. 

The debt ceiling deal announced this weekend looks like a step back from this new path – albeit a smaller one than many had feared. Supporters of industrial policy and more robust social insurance have reason to be disappointed – especially since the administration, arguably, had more room for maneuver than it was willing to use. 

To be fair, the agreement in part merely anticipates the likely outcome of budget negotiations. Regardless of the debt ceiling, the administration was always going to have to compromise with the House leadership to pass a budget. The difference is that in a normal negotiation, most government spending continues as usual until a deal is reached. Raising the stakes of failure to reach a deal shifts the balance in favor of the side more willing to court disaster. Allowing budget negotiations to get wrapped up with the debt ceiling may have forced the administration to give up more ground than it otherwise would. 

The Biden team’s major nonbudget concession was to accept additional work requirements for some federal benefits. The primary effect of work requirements, with their often onerous administrative burdens, will be to push people off these programs. This might be welcome, if you would prefer that they not exist in their current form at all. But it’s a surprising concession from an administration that, not long ago, was pushing in the other direction. 

In a bigger sense this change directly repudiates one of the main social-policy lessons of recent years. Pandemic income-support programs were an extraordinary demonstration of the value of simple, universal social insurance programs, compared with narrowly targeted ones. The expiration of pandemic unemployment benefits gave us the cleanest test we are ever likely to see of the effect of social insurance and employment. States that ended pandemic benefits early did not see any faster job growth than ones that kept it longer – despite the fact that these programs gave their recipients far stronger incentives against work than those targeted in the budget deal. 

These compromises are all the more disappointing since there were routes around the debt ceiling that the administration, for whatever reason, chose not to explore. The platinum coin got a healthy share of attention. But there were plenty of others. 

The Treasury Department, for example, could have looked into selling debt at a premium. The debt ceiling binds the face value, or principal, of federal debt. There is no reason that this has to be equal to the amount the debt sells for – this is simply how auctions are currently structured. For much of U.S. history, government debt was sold at a discount or premium to its face value. Fixing an above-market interest rate and selling debt at more than face value would allow more funds to be raised without exceeding the debt ceiling. 

The administration might also have asked the Federal Reserve to prepay future remittances. In most years, the Fed makes a profit, which it remits to the Treasury. But it can also report a loss, as it has since September. When that happens, the Fed simply creates new reserves to make up the shortfall, offsetting these with a “deferred asset” representing future remittances. (Currently, the Fed is carrying a deferred asset of $62 billion.) The same device could be used to finance public spending without issuing debt. In a report a decade ago, Fed staff suggested that deferred assets could be used in this way to give the Treasury department “more breathing room under the debt ceiling.” (To be clear, they were not saying that this was a good idea, just noting the possibility.) 

Another route around the debt ceiling might come from the fact that about one-fifth of the federal debt – some $6 trillion – is held by federal trust funds like Social Security, rather than by the public. (Another $5 trillion is held by the Federal Reserve.) This debt has no economic function. It is a bookkeeping device reflecting the fact that trust fund contributions to date have been higher than payments. Retiring these bonds, or replacing them with other instruments that wouldn’t count against the ceiling, would have no effect on either the government’s commitment to pay scheduled benefits or its ability to do so. But it would reduce the notional value of debt outstanding. 

None of these options would be costless, risk-free, or even guaranteed to work. But there is little evidence they were seriously considered. This is a bit disheartening for supporters of the administration’s program. It’s hard to understand why you would go into negotiations with one hand tied behind your backs, and not have a plan B in case negotiations break down.

Tellingly, the one alternative the Biden team did consider was invoking the 14th Amendment to justify issuing new debt in defiance of the ceiling. The amendment refers specifically to the federal government’s debt obligations. But of course, hitting the debt ceiling would not only endanger the government’s debt service. It would threaten all kinds of payments that are legally mandated and economically vital. The openness to the 14th Amendment route, consistent with other public statements, suggests that decision-makers in the administration saw the overriding goal as protecting the financial system from the consequences of a debt default – as opposed to protecting the whole range of public payments. 

What looks like a myopic focus on the dangers to banks recalls one of the worst failures of the Obama administration. 

In the wake of the collapse of the housing market, Congress in 2009 authorized $46 billion in assistance for homeowners facing foreclosure through the Home Affordable Modification Program. But the Obama administration spent just a small fraction of this money (less than 3%) in the program’s first two years, helping only a small fraction of the number of homeowners originally promised. 

The failure to help homeowners was not due to callousness or incompetence. Rather, it was due to the overriding priority put on the stability of the banking system. As Obama’s Treasury Secretary Timothy Geithner later explained, they saw the primary purpose of HAMP not as assisting homeowners, but as a way to “foam the runway” for a financial system facing ongoing mortgage losses.

Geithner and company weren’t wrong to see shoring up the banks as important. The problem was that this was allowed to take absolute priority over all other goals — with the result that millions of families lost their homes, an important factor in the slow growth of much of the 2010s.

One wouldn’t want to push this analogy too far. The debt ceiling deal is not nearly as consequential – or as clear a reflection of administration priorities – as the abandonment of underwater homeowners was. But it does suggest similar blinders: too much attention to the danger of financial crisis on one side, not enough to equally grave threats from other directions.

It’s clear that Treasury Secretary Janet Yellen and the rest of the Biden administration are very attuned to the dangers of a default. But have they given enough thought to the other dangers of failing to reach a debt-ceiling deal — or of reaching a bad one? Financial crises are not the only crises. There are many ways that an economy can break down.

 

At Jacobin: Yes, We Should Support Industrial Policy and the Green New Deal

(This piece was published by Jacobin on April 6, 2023, in response to the Dylan Riley post linked in the first paragraph. The version below adds a few unimportant footnotes and one somewhat important paragraph that I forgot to write before submitting it — the one about halfway through that mentions Oskar Lange.)

A few days ago, Dylan Riley wrote a post on New Left Review’s Sidecar blog that provoked a furious response on twitter. 1 Since I largely agree with the criticism made by Alex Williams, Nathan Tankus, Doug Henwood and others, perhaps I shouldn’t add to the chorus. But I want to try to clarify the larger stakes in this debate.

Riley’s piece starts from the suggestion that the failure of Silicon Valley Bank reflects a larger crisis of overcapacity and lack of investment opportunities. SVB, he writes,

had parked a huge quantity of its deposits in low-yield – but supposedly safe – government-backed securities and low-interest bonds. … the bank was overwhelmed by the massive growth in deposits from its tech clients – and neither it nor they could find anything worthwhile to invest in. …the SVB collapse is a beautiful, almost paradigmatic, demonstration of the fundamental structural problem of contemporary capitalism: a hyper-competitive system, clogged with excess capacity and savings, with no obvious outlets to soak them up.

This is an elegant framing but it runs into a problem immediately, involving the ambivalent meaning of ‘invest.” The depositors in SVB were not venture capitalists, but the firms that they had stakes in. The reason SVB had such big deposits was not because finance was unable to find profitable outlets even in the tech world, but precisely because it had done so. (Whether these businesses are doing anything socially useful is of course a different question.) The fact that SVB’s assets consisted of Treasury bonds rather than loans to its depositors reflects the shift in business financing, especially in tech, away from banks toward specialized venture capital funds — an interesting development, certainly, but one that doesn’t tell us anything about the overall population of businesses looking for financing.

Lurking behind Riley’s formulation here seems to be a crude version of commodity money theory, in which money is either out in the world being useful, or being left idle in the bank. But money in the real world is always in the form of bank deposits — that’s what money is — regardless of how actively it is circulating.

To be fair, Silicon Valley Bank is just the hook here. The real argument of the post — the one that provoked such a reaction — is that the ongoing crisis of overcapacity means that Green New Deal-type programs of public investment in decarbonization are a self-defeating dead end.   “Imagine,” writes Riley,

that Bidenomics in its most ambitious form were successful. What exactly would this mean? Above all it would lead to the onshoring of industrial capacity in both chip manufacturing and green tech. But that process would unfold in a global context in which all the other capitalist powers were vigorously attempting to do more or less the same thing. The consequence of this simultaneous industrialization drive would be a massive exacerbation of the problems of overcapacity on a world scale, putting sharp pressure on the returns of the same private capital that was ‘crowded-in’ by ‘market-making’ industrialization policies.

There are a number of distinct arguments in, or at least in the vicinity of, Riley’s post. We can of course debate the specific content of the IRA — where does it fall on Daniela Gabor’s spectrum from “de-risking” to the “big green state”? There’s a larger political question about the extent to which activists and intellectuals on the left should attach themselves to programs carried out by the established political actors through the state, as opposed to popular movements outside of it. And then there is the specific question of overcapacity — is it reasonable to think that any boost to investment via public spending will just diminish opportunities for profitable accumulation elsewhere?

I’m not unsympathetic to the first two of these arguments, even if I don’t agree with them in this particular case.

In my opinion, the IRA model passes two key tests: The public money goes to productive enterprises, not to holders of financial assets; and there is affirmative direction of spending toward specific activities. To me there is an important difference between “for each new solar panel you install with union labor, you will get x dollars of subsidies” and “if you hold a bond that fits these broad criteria, the interest is taxed at a lower rate” — even though, at a sufficiently high level of abstraction, both involve subsidizing private capital. But there’s a lot of room for debate here about how to describe specific measures and where to draw the line; a different read of its provisions might plausibly put the IRA on the other side of it.

Similarly, it’s important to remember that winning some specific legislation does not mean that you control the state — there’s a real danger in imagining ourselves “in the room where it happens” when in reality we are very far from it. When Riley writes that “no socialist should advocate an ‘industrial policy’ of any sort, nor have any truck with self-defeating New Deals,” I, obviously, do not agree. But if you wrote a parallel sentence about the humanitarian activities of the US military in various parts of the globe, I would agree wholeheartedly.  Over the years I’ve had many disagreements with people with broadly similar political commitments, who thought this particular intervention could was worth supporting. As far as I am concerned, when the instruments of the state are marines and cruise missiles, the only possible engagement from the left is protest and obstruction.

War is different from industrial policy. But one can imagine an argument along these lines that would be worth taking seriously. If you wanted to write a stronger critique of the Green New Deal from the left, you might stress the tight links between industrial policy and nationalism, and the frightening anti-China rhetoric that’s a ubiquitous part of the case for public investment.

Here, though, I want to talk about the specifically economic argument, about overproduction.

Riley’s post draws on a long-standing argument among writers for the New Left Review, that the fundamental challenge for contemporary capitalism is overproduction or excess capacity. In this story, the end of the postwar Golden Age was due to the end of US dominance in world trade. Starting in the 1970s, stable oligopolies in manufacturing gave way to to cutthroat competition as producers from an increasing number of countries competed for a limited market. Because manufacturing is so dependent on long-lived, specialized capital goods, producers are unwilling to exit even in the face of falling prices, giving rise to chronic depressed profits and excess capacity, and a turn to financial predation — what Robert Brenner calls neofeudalism — as an alternative outlet for investment. Even when profits recover, there’s little incentive to accumulate new means of production, given that there’s already capacity to produce more than markets can absorb. 

The most influential version of this story is probably Brenner’s book-length New Left Review article from 1998. 2 It is clearly compelling on some level – a lot of people seem to believe something like it. It draws on a long tradition of theories of overproduction and destructive competition, going back at least to the underconsumption theories of Hobson, Lenin and Luxemburg on the one side and, on the other, the first generation of the US economics profession, shaped by the pathological effects of competition between railways. Richard Ely, founder of the American Economics Association, described the problem clearly: “whenever the principle of increasing returns works with any high degree of intensity, competition can never regulate private business satisfactorily.”  His contemporary Arthur Hadley described destructive competition in capital-intensive industries in very much the same terms as Brenner: at prices 

far below the point where it pays to do your own business, it pays to steal business from another man. The influx of new capital will cease; but the fight will go on, either until the old investment and machinery are worn out, or until a pool of some sort is arranged.

(The quotes are from Michael Perelman’s excellent The End of Economics.)

There’s an important truth to the idea that, in a world of long-lived specialized capital goods and constant or falling marginal costs, there is no tendency for market prices to reflect costs of production. Too much competition, and firms will sell at prices that don’t recoup their fixed costs, and drive each other to bankruptcy. Too little competition, and firms will recover their full costs and then some, while limiting socially useful output. No market process ensures that competition ends up at the goldilocks level in the middle.

But while this problem is real, there’s something very strange about the way Riley deploys it as an argument against the Green New Deal. Rather than a story about competition, he — following Brenner — talks as if there was a fixed amount of demand out there that producers must compete for. In a world of overproduction, he says, any public investment will just create more excess capacity, driving down profits and accumulation somewhere else.

In a funny way, this is the mirror image of the Treasury View of the 1930s — which said that any increase in public employment would just mean an equal fall in private employment — or of its modern day successors like Jason Furman and Lawrence Summers. The Furman-Summers line is that the world has only a certain amount of productive capacity; any public spending above that level that will just result in inflation, or else crowding out of private investment. The Brenner-Riley line is that the world has only a certain amount of demand, both in general and for carbon-reducing technology specifically. Try to produce any more than that, and you’ll just have excess capacity and falling profits. Both sides agree that the economy is like a bathtub — try to overfill it and the excess will just run over the sides. The difference is that for first side demand is the water and productive capacity is the tub, while for the other the water is capacity and the tub is demand.

Riley invokes Oskar Lange’s 1930s discussions of electoral socialism in support of his contention that “half-measures are self-contradictory absurdities” — which very much includes any “blather about New Deals.” But the situation facing socialist governments in the 1930s was quite different. Their problem was that any serious discussion of nationalization would terrify capital and discourage investment, sending the economy into a deeper slump and dooming socialists’ prospects for extending their initial electoral gains. This meant that nationalization had to be carried out all at once or not at all — which in practice, of course, meant the latter. (There is a good discussion of this in Przeworski’s Paper Stones.) Keynesian fiscal policy was precisely what offered the way out of this trap, by allowing an expansion of the public sector on terms consistent with continued private accumulation. Riley here is rejecting exactly the solution to the problem Lange identified.

But there’s a deeper problem with the Riley-Brenner vision. In Jim Crotty’s review of Brenner’s long article, he argues that, in response to what Brenner saw as an excessive focus on labor-capital conflict in accounts of the end of the postwar boom, he created an equally one-sided story focused exclusively on inter-capitalist competition. I think this gets to the crux of the matter.

Let’s take a step back.

The development of a capitalist economy is a complex process, which can go wrong at many points. Production on an increased scale requires the expansion of the physical and organizational means of production, with whatever technical and material requirements that entails. Additional labor must be enlisted and supervised. New raw materials must be acquired, and the production process itself has to be carried out on an increased scale. The resulting products have to be sold at a price that covers the cost of production — in other words, there must be sufficient demand. The resulting surplus has to be channeled back to investment. All of this has to take place without excessive changes in relative prices, and in particular without politically destabilizing changes in wages or the distribution of income. The reinvestment stage normally happens via the financial system; the ongoing payment commitments this generates have to be consistently met. And it all must take place without generating unsustainable cross-border payment flows or commitments. 

All of these steps have to happen in sync, across a wide range of sectors and enterprises. A business expanding production has to be confident that the market for its products is also growing, as well as the supply of the inputs it uses, the financing it depends on, and the labor it exploits. An interruption in any of these will halt the whole process. When growth is steady and incremental, this can be mostly taken for granted, but not in the case of more rapid or qualitative change, as in industrialization.

This problem was clearly recognized by earlier development economists. It’s the idea behind the “two gap” and “three gap” models of Hollis Chenery and his collaborators, the “big push” of Rosenstein-Rodan, or Gerschenkron’s famous essay on late industrialization.3  Everything has to move forward together. Industrialization requires not only factories, but ports, railroads, water, electricity, schools. All of these depend on the others. You need savings (or at least credit), and you need demand, and you need labor, and you need foreign exchange.4 

At the same time, an essential feature of the capitalist mode of production is that the various steps each involve different decision makers, acting with an eye only to their own monetary returns. From the point of view of each decision maker, the choices of all the others look like fixed, objective constraints. From the point of view of a particular producer, the question of whether there is sufficient demand to justify additional output is an objective fact. For the producers collectively, it is their decisions that determine the level of demand just as much as — in fact simultaneously with — the level of current output.  But for them individually, it’s a given, an external constraint. 

The problem comes when in thinking about the system as a whole we treat something like destructive competition not as what it is – a coordination problem – but from the partial perspective of the individual producer. From this perspective, it appears as objectively given, as if there were only so much demand to go around. The mainstream, of course, makes the exact same error when they treat the productive capacity of the system as prior to and independent of the actual level of activity. (This is the point of Arjun Jayadev’s and my recent paper on supply constraints.) The fact that when one part of the system moves ahead faster it encounters friction from parts that are lagging imposes genuine limits on the pace of expansion — both supply and demand constraints are real – but we should not treat them as absolute or externally given. 

The faster and farther reaching are the changes in production, the harder it is for a decentralized market system to maintain coherence, and the more necessary conscious, more or less centralized coordination becomes. This was one of the main lessons of the economic mobilization for World War II, and a critical consideration for decarbonization. Planning is ubiquitous in real-world capitalism, and more rapid transformations in activity require planning at a higher level.  

At the same time, we shouldn’t underestimate the capacity of our system of anarchic production for profit to eventually break through the barriers it encounters — something Marx understood better than anyone. That is why it’s become the world-encompassing system it is. Sustained demand will itself call forth the new labor and improved production techniques required to meet it.  Conversely, while Say’s law may not hold in the short run, or as a matter of logic, it is very much the case that improvements in production create new markets, and expand demand qualitatively as well as quantitatively.

Overproduction and excess capacity are not new phenomena. They have been a recurring feature of the great crises that capitalist economies have experienced for the past two hundred years. Here is Jules Michelet’s beautiful contemporary description of the 1842 commercial crisis in France:

The cotton mills were at the last gasp, choking to death. The warehouses were stuffed, and there were no sales. The terrified manufacturer dared neither work nor stop working with those devouring machines. Yet usury is not laid off, so he worked half-time, and the glut grew worse. Prices fell, but in vain; they went on falling until cotton cloth stood at six sous.

We should never forget about the misery and chaos of crises like this. But we should also not forget how this story ends. It is not “and then eventually enough mills were shut down and things went back to how they were before.”

Here’s how the Michelet passage continues:

Then something completely unexpected happened. The words six sous aroused the people. Millions of purchasers — poor people who had never bought anything — began to stir. Then we saw what an immense and powerful consumer the people is when engaged. The warehouses were emptied in a moment. The machines began to work furiously again, and chimneys began to smoke. That was a revolution in France, little noted but a great revolution nonetheless. It was a revolution in cleanliness and the embellishments of the homes of the poor; underwear, bedding, table linen, and window curtains were now being used by whole classes who had not used them since the beginning of the world.

An openness to the possibility of this sort of transformational change is what’s fundamentally missing from both the Summers-Furman and Brenner-Riley views. This is not a system in homeostasis, that if disturbed returns to its old position. It is a system lurching from one unstable equilibrium to another. And this is very relevant, I think, to decarbonization. 

Not so very long ago, it was conventional wisdom that photovoltaic energy was never going to be more than a niche power source — useful when you can’t connect to the grid, but way too expensive to to ever be used at utility scale. And now look — solar accounted for nearly half of new electricity generation installed last year. There’s an almost endless scope for further growth in renewable energy, as more of the economy is electrified. The fact that Silicon Valley Bank was holding a bunch of Treasury bonds does not mean that the field of productive investment has been exhausted.

The tremendous growth of renewable energy over the past generation wouldn’t have happened without public subsidies and regulation. At the same time, most of the actual production has been carried out by employees of private, profit-seeking businesses. Riley is absolutely right that no one should be counting on private investment in education or in care work. Explaining why those activities depend critically on the autonomy and intrinsic motivation of the workers carrying them out, and are therefore inherently unsuited to for-profit businesses, is something we need to keep doing. The same goes for many public functions that have been turned over to contractors. But there are many other areas where it is still possible to harness the profit motive to meet human needs. 

(I am not, to be clear, saying anything about the virtues of markets or the profit motive in the abstract. I would like to progressively eliminate them from human life. I am simply stating the fact that my house was put up by a private builder, for profit, and yet the roof does keep out the rain.) 

There is plenty of scope to criticize the specific content of the IRA and other climate legislation, and the strategic choices of the groups that support them. (Altho a bit of humility is called for with the latter.) But we need to categorically reject the idea that there is some hard constraint such that any program to increase private spending on decarbonization will be canceled out by a reduction in spending somewhere else. 

The bottom line, both for the politics and the economics, is that we need to resist thinking in terms of a change in one area while everything else stays the same. Ceteris paribus may be a useful analytic tool, but it’s fundamentally inapplicable to historical processes where one change creates the pressure, and the possibility, for another. 

Yes, given the existing productive technology, given existing markets, one country’s support for renewable energy might compete with another’s. But these things are not given. Economies of scale exist at the level of the industry as well as the firm; technological progress in one place quickly spills over to others. As, say, hydrogen becomes practical for large-scale energy storage, it will be come practical to produce green energy in areas where it isn’t today. This is as far as you can get from the Brenner paradigm of a zero-sum competition for shares of a fixed market.

The real problem for the Green New Deal and broader industrial policy program is not scarcity, whether of material or of markets. It is twofold. First, it requires a capacity for public planning that is currently lacking, in the US and elsewhere. Industrial policy means building up and legitimating the state’s direct role in a wider range of activity— a challenge when the biggest existing form of direct public provision, the public schools, are under ferocious attack from the right. Second, to the extent that a rush of public and private spending leads to a sustained boom, that will create profound challenges for a system that is used to managing distributional conflicts through unemployment. We’ve gotten a sense of what the political reaction to full employment might look like from recent inflation discourse, with its fears of “labor scarcity.” It’s reasonable, for now, to respond that it’s silly to worry about a wage-price spiral when labor is so weak. But what happens when labor is stronger?

These are real challenges. But we shouldn’t see them as arguments against this program, only as markers for where the next conflicts are likely to be. That’s always how it is. “Gradualism cannot work,” declares Riley, but all politics is incremental. Socialism is only a direction of travel. Even if the “commanding heights of the economy” could “be seized at once” — Riley’s rather ambitious alternative to the Green New Deal — that would only be a step toward the next struggle.

A program to mobilize the existing bourgeois state to push private spending in the direction of meeting human needs, and the need for a habitable planet in particular, faces many obstacles — that is true. Whatever successes the left has had under the Biden administration have been limited and compromised. Some of the most important, like the expansion of unemployment and family benefits, have already been rolled back — that is also true. But the same could be said for all the socialist programs of the past. We have to just keep going, with one eye on the long run direction of travel and the other on the contingencies of the present. The one thing we can say for certain about the future is that it hasn’t happened yet. If we keep going, we will see things that haven’t been seen since the beginning of the world.

The Return of the Renter

Every month, the Census releases new numbers on new housing construction. As an indicator of current economic conditions, June’s numbers didn’t give any dramatic news one way or another. But they did highlight a trend that I think should get more attention: the decline of single-family housing in the US.

To market watchers, housing is an important sign of business cycle turning points. A well-known article argues that Housing Is the Business Cycle.  From this point of view, June’s numbers were not very informative. They told the same story the last several months’ did: After steadily rising from the end of the recession, housing construction has stabilized — housing starts and permits issued have been basically unchanged since early 2017. Last month’s housing starts were almost exactly the same as last summer’s. The fact that housing construction is no longer rising might perhaps be seen as a sign of economic weakness; but it’s hard to take it as a sign of a crisis or imminent downturn.But pulling back from the month by month variation, the most recent numbers reflect two related trends that may be more important than the ups and downs of the business cycle.

The first trend is the secular decline in housing construction. Housing starts, while higher than  a few years ago, are still very low by historical standards — not just compared with the boom period of the 2000s, but with most earlier periods as well. On a per capita basis, new housing construction is at a level seen only at the bottom of the worst recessions before 2007.  Compared with an annual average of 6.5 new units per thousand people in the 1980s and 1990s, the current rate is less than 4 per thousand, and shows no sign of returning to the old rate.

It’s hard to say how much this decline in new housing construction is a specifically post-bubble-and-crisis phenomenon, and how much it reflects longer-term trends. People sometimes suggest that low rates of housing construction are the flipside of the housing boom of the 2000s. There was a strong case for this in the years immediately after the recession, when the fraction of vacant houses was well above historical levels. But since then, the inventory of vacant houses has come down toward more normal levels.

Meanwhile, if we look at new housing construction per capita over a longer period, there is a fairly steady long-term decline – it’s not clear that the most recent period is exceptional. If you draw an exponential trend from 1959 through 1999 (the start of the housing bubble), as shown in the figure below, the current level of housing starts falls right on that trend. And relative to the shortfall in new construction during 2008-2015 is not too much greater than the excess of new construction during 1999-2007. To put it another way, the percentage decline in housing starts per capita over the past 20 years, is not much bigger than the average decline over any 20 year period since the 1950s. 

Of course, this is just one way of looking at the numbers. There are many ways to draw a trend! And one might argue that, historically, the top of a boom should see new housing starts well above trend, suggesting that the recent decline is something new after all. You might also reasonably wonder whether the long term trend has any substantive meaning at all. The political economy of housing the 1950s and 1960s was different from today on all sorts of levels. It wouldn’t be hard to look at the same data in terms of a structural break, rather than — or in addition to — a downward trend.

For macroeconomic purposes, though, it doesn’t necessarily matter. Whether it reflects the ongoing effects of the subprime crisis  or whether it reflects longer-term factors — slowing population growth, an aging population, the end of suburbanization – or whether it’s some mix of both, the decline in new housing construction remains an important economic fact.

Among other things, it is important for macroeconomic policy. Mortgage lending is central to the financial system: Housing accounts for over 70 percent of household debt, and housing finance plays a central role in financial instability. Conversely, residential construction is the economic sector most sensitive to financial conditions, and to monetary policy in particular. So the shrinking weight of housing in the economy may be a factor in the Federal Reserve’s inability to restore growth and full employment after the crisis. Looking forward, if conventional monetary policy works primarily through residential construction, and residential construction is a permanently smaller part of the economy, that is another argument for broadening the Fed’s toolkit.

Housing construction may be down for the count, at least compared with historical levels. But — and this is the second trend – it is not down across the board. The recent decline is limited to single family housing. Multifamily construction has been quite strong, at least by the standards of the post-1990 period. Compared with the two decades before 2007, single-unit housing starts in the past year are down by a third. Multifamily starts are up by a third. Per capita multifamily housing starts are actually higher than they were at the height of the housing boom. These divergent trends imply a major shift in the composition of new housing. Through much of the 1990s, less than 10 percent of new housing was in multifamily projects. Today, the share is more like 30 percent. This is a dramatic change in the mix of housing being added, a shift change visible across much of the country in the form of suddenly-ubiquitous six-story woodframe apartment buildings. The most recent housing data released suggests that, if anything, this trend is still gathering steam: A full third of new housing in June was in multifamily buildings, an even higher proportion than we’ve seen in recent years. In the areas that the Census designates as metropolitan cores, the shift is even more dramatic, with the majority of new housing units now found in multifamily buildings. 

The shift in new construction away from single-family houses is consistent with the decline in homeownership. At 64 percent of households, the share of homeowners is 5 points lower than it was in the mid-2000s. In fact it’s back almost exactly where it was 30 years ago, before the big expansion in homeownership of the 1990s and 2000s. 

To be sure, multifamily housing and rental housing are not the same thing. But there is a very substantial overlap. Over 80 percent of detached single-family homes are owned by their occupants. Less than 20 percent of units in larger buildings are, and the share drops as the number of units in the building rises. While homeownership rates have fallen across the board over the past decade, these relative patterns have not changed. (See the figure below.) So it’s fair to say that the decline of homeownership and the shift toward multifamily developments are, if not the same trend, at least closely linked.The aggregate figures understate the decline in homeownership, because over this period the population has also been aging, and older families are much more likely to own their homes. (For a good discussion of these trends, see here.) For younger families, homeownership rates are lower than they have been in many decades. Compared with 40 years ago, homeownership rates are substantially lower for every age group except those 65 or older. Even compared with a decade ago, there has been a substantial fall in homeownership rates in younger age groups. As a result, the typical homeowner today is much older than in the past. Only a quarter of US homeowners today are younger than 45, compared with nearly half in the 1980s.

The same pattern is visible over the post-housing crash period, as shown in the figure below. Among those aged 30-44 – the ages when most Americans are starting families – the rate of homeownership is nearly 10 points lower than it was just a decade ago. The shift in housing construction toward multifamily buildings reflects the fact that Americans in their prime working years are much more likely to be renters than they used to be. This shift is important for politics as well as the economy. Tenant organizations were once an important vehicle for mass politics in American cities. In the progressive imagination of a century ago, workers were squeezed from one side by landlords and high rents just as they were squeezed from the other by bosses and low wages.   

After World War II, the focus of housing politics shifted away from tenants’ rights, and toward broadening access to home ownership. This shift reflected a genuine expansion of homeownership to middle class and working class families, thanks to a range of public supports — supports, it should be noted, from from which African-Americans were largely excluded. But it also reflected a larger vision of democratic politics in terms of a world of small property owners. Homeowners were expected — not without reason — to be more conservative, more ready to imagine themselves on the side of property owners in general. As William Levitt, developer of the iconic Long Island suburb, is supposed to have said: “No man who owns his own house and lot can be a communist.”

The idea of a property-owning democracy has deep roots in the American political imagination, and can be part of a progressive vision as well as a conservative one. Baby bonds – an endowment or grant given to everyone at the start of their life — are supposed to be a way to broaden property ownership in a way that opens up rather than shuts down possibilities for radical change. Here for example is Darrick Hamilton in his 2018 TED Talk. “Wealth,” he says, 

is the paramount indicator of economic security and well-being. It provides financial agency, economic security… We use words like choice, freedom to describe the benefits of the market, but it is literally wealth that gives us choice, freedom and optionality. Wealthier families are better positioned to finance an elite, independent school and college education, access capital to start a business, finance expensive medical procedures, reside in neighborhoods with higher amenities… Basically, when it comes to economic security, wealth is both the beginning and the end.

Descriptively, there’s certainly some truth to this. And with homes by far the most important form of middle-class wealth, policies to promote homeownership have been supported on exactly these grounds. Homeowners enjoy more security, stability, a cushion against financial setbacks, and the ability to pass their social position on to their children. The policy problem, from this point of view, is simply to ensure that everyone gets to enjoy these benefits. 

One way to keep people secure in their homes is to allow more people to own them. This has been the focus of US housing policy for most of the past century. But another way is to give tenants more of the protections that only homeowners currently enjoy. Outside a few major cities, renting has been assumed to be a transitory stage in the lifecycle, so there was little reason to worry about security of tenure for renters. A few years ago I was a guest on a radio show on rent control, and I suggested that apart from affordability,  an important goal of rent regulation was to protect people’s right to remain in their homes. The host was genuinely startled: “I’ve never heard someone say that a person has the right to remain in their home whether they own it or not.”

There are still plenty of people who see the decline in homeownership as a problem to be solved. But the shift in the housing stock toward multifamily units suggests that the trend toward increased  renting is unlikely to be reversed any time soon. (And even many single-family homes are now owned by investors.) The experience of the past 15 years suggests that, in any case, home ownership offers less security than we used to think.

If more and more Americans remain renters through their adult lives, the relationship with the landlords may again approach the relationship with the employer in political salience. Strengthening protections for tenants may again be the basis of political mobilization. And people may become more open to the idea that living in a place, whether or not you own it, gives you a moral claim on it — as beautifully dramatized, for example, in the 2019 movie The Last Black Man in San Francisco. 

We may already be seeing this shift in the political sphere. In recent years, there has been a resurgence of support for rent regulation. A ballot measure for statewide rent control failed in California, but various bills to extend or strengthen local rent regulation have gotten significant support. Oregon recently passed the nation’s first statewide rent control measure. And in New York, Governor Cuomo signed into law a sweeping bill strengthening rent regulation where it already exists — mainly New York City – and opening the way for municipalities around the state to pass their own rent regulations.

The revival of rent regulation reflects, in the first instance, political conditions – in New York, years of dogged organizing work by grassroots coalitions, as well as the primary defeats of most of the so-called Independent Democratic Conference, nominal Democrats who caucused with Republicans and gave them control of the State Senate. But it is not diminishing the hard work by rent-regulation supporters to suggest that the housing-market shift toward rentals made the terrain more favorable for them. When nearly half the population are renters, as in New York State, there is likely to be more support for rent regulation. The same dynamic no doubt played a role in the opposition to Amazon’s new headquarters in Queens: For most residents, higher property values meant higher rents, not windfall gains. 

To be sure, the United States is not (yet) New York. The majority of American families still live in homes they own. But as the new housing numbers remind us, it’s a smaller majority than it used to be, and likely to get even smaller in the future. Which suggests that, along with measures to democratize property-ownership, there is a future for measures like rent control, to ensure that non-property owners also have a secure claim on their part of our common wealth.


(Figures 1, 3 and 4 are my analysis of series from FRED: HOUST, HOUST1F, COMPUTSA, and POPTHM. Figure 2 is from the Census Housing and Vacancy Survey. Figures 5 and 6 are my analysis of ACS data.) 

Populism, or Its Opposite?

[I am an occasional contributor to the roundtables in the magazine The International Economy. This month’s topic was “Why is populism on the rise?” My answer is below. While the format of the roundtables doesn’t really allow for citations, I should say here that Corey Robin has made the same point about Trump.]

As a political category, populism is uniquely slippery. Far from describing any consistent doctrine, program or form of organization, it is applied to Die Linke and Alternative for Germany, Geert Wilders and Elizabeth Warren, Podemos and Le Pen, Bernie Sanders and Jair Bolsonaro – to people and organizations whose substantive programs and bases of support are diametrically opposed on every point.

A cynic might say the word simply refers to democratic outcomes of which the speaker doesn’t approve. Even more cynically, but more precisely, one might see it as an attempt to discredit the left by linking it with the far right, via a portmanteau political category that somehow includes both outright fascists and anyone to the left of today’s established social-democratic parties.

A more charitable reading would be that populism describes the elevation of popular support over other criteria of legitimacy, such as law or business support or professional expertise. This is a reasonably clear definition that fits most common uses of the term. But does it fit developments in the real world?

It seems to me that if populism means something like illiberal democracy, then the central feature of today’s political moment is not populism but its opposite.

In the US, Trump is widely seen as populist. Certainly in his public persona he rejects established norms and expert opinion. But it’s important to remember that he lost the popular vote by a wide margin, and became president only thanks to the electoral college – one of a number of anti-democratic features of the US constitution that exist precisely to limit the power of popular majorities. To the extent Trump has advanced a policy agenda, it has been essentially the same as an establishment Republican would have. And it has been enacted into law only thanks to the non-majoritarian character of the Senate. His most lasting impact may well come through his Supreme Court appointments — which have been made in strict accordance with law and will be consequential precisely because of the Court’s power to overrule popular majorities.

In Brazil, Bolsonaro did win the popular vote — but only after the previous president was removed from office in what was effectively a soft coup, and the country’s most popular politician was banned from running by the courts. This judicial preemption of democracy is the opposite of what is usually meant by populism.

In Europe, the rise of anti-establishment parties, mainly on the right, would seem to give a stronger basis for fears of populism. It is certainly true that many countries have seen a rise in new parties, thanks to the discrediting of the established ones by a decade of economic crisis. But consider Italy. Yes, the governing League and Five Star Movement show up on many lists of populist political parties. But the real novelty in Italian politics today isn’t the election of politicians claiming a mandate from the people — which don’t? — but the fact that their proposed budget was overruled by the European Commission. The right to approve budgets has been the fundamental right of legislatures since the origin of the modern state, so its surrender is a political watershed. The projected deficits that justified the Commission’s intervention are not even exceptional by European standards; France, for instance, has had larger deficits every year for the past decade. So it’s hard to see this as anything but a shift in the center of political authority. And the new authority, framed in terms of a mathematical formula, is based on exactly the anti-populist grounds of expertise and impersonal rules.

The recent history of the EU is a series of such victories of liberalism over democracy. The takeover of Greece by the “troika” of the European Commission, the ECB and the IMF was the most dramatic example, but it was simply a continuation of the ECB’s strategy of using financial crises on the periphery to push through an agenda of deregulation, privatization and liberalization that democratically-accountable governments could not enact on their own. When the ECB intervened to stabilize the market for Spanish bonds in 2011, it was only after imposing a long list of conditions, including labor market reforms far outside the normal remit of a central bank, and even a demand that the government take “exceptional action” to hold down private sector wage growth. Other governments under bond-market pressure were subject to similar demands. What’s striking in this context is not the occasional victory of anti-European political parties, but how consistently — so far at least — they have backed down in confrontations with the European authorities.

All this may change. But for the moment concerns about “populism” seem like an evasion of the actual political realities — perhaps a sign of bad conscience by an elite whose authority, more than in many years, lacks a basis in popular consent.

Blogging in the Age of Trump

I haven’t written anything for this blog in the past month. Or rather, I’ve written quite a bit, but nothing I’ve felt comfortable posting. No surprise why.

On the one hand, I have — like everyone — opinions about the election, and the coming Trump presidency and broader Republican ascendancy. But none of those opinions seem especially insightful or original or coherent, and most of them I don’t hold with great confidence. I’m also not sure that this space is the right one for discussions of political strategy: Readers of this blog don’t constitute the kind of community for which the question “what should we do?” makes sense.

But on the other hand, it doesn’t feel right — it doesn’t feel possible — to just go on posting about the same economic questions as before, as if nothing has changed. Even if, in important ways, nothing has. And it still seems too soon to know where the terrains of struggle will be under the new administration, or to guess how the economic debates will reorient themselves along the new political field lines.

I’ve felt stuck. I know I’m not the only one who feels like they have nothing useful to say.

But you still have to get up in the morning, you still have to go to your job, you have to teach your classes, you have to write blog posts. So, back to work.

Links for April 21

 

The coup in Brazil. My friend Laura Carvalho has a piece in the Times, briefly but decisively making the case that, yes, the impeachment of Dilma Rousseff is a coup. Also worth reading on Brazil: Matias Vernengo, Marc Weisbrot and Glenn Greenwald.

 

The bondholder’s view of the world.  Normally we are told that when interest rates on public debt rise, that’s a sign of the awesome power of bond markets, passing judgement on governments that they find unsound. Now we learn from this Bloomberg piece that when interest rates on public debt fall, that  too is a sign of the awesome power of bond markets. Sub-1 percent rates on Irish 10-year bonds are glossed as: “Bond Market to Periphery Politicians: You Don’t Matter.” The point is that even without a government, Ireland can borrow for next to nothing. Now, you might think that if the “service” bond markets offer is available basically for free, to basically anyone — the takeaway of the piece — then it’s the bond markets that don’t matter. Well then you, my friend, will never make it as a writer of think pieces in the business press.

 

The bondholder’s view, part two. Brian Romanchuk says what needs to be said about some surprisingly credulous comments by Olivier Blanchard on Japan’s public debt.

Anyone who thinks that hedge funds have the balance sheet capacity to “fund” a G7 nation does not understand how financial markets are organised. There has been a parade of hedge funds shorting the JGB market (directly or indirectly) for decades, and the negative yields on JGB’s tells you how well those trades worked out.

 

The prehistory of Trumpism. Here is a nice piece by my University of Chicago classmate Rick Perlstein on the roots of Trump’s politics in the civil-rights-backlash politics of fear and resentment of Koch-era New York. (Also.) I’ve been wishing for a while that Trump’s role in the Central Park Five case would get a more central place in discussions of his politics, so I’m glad to see Rick take that up. It’s also smart to link it to the Death Wish/Taxi Driver/Bernie Goetz white-vigilante politics of the era.  (Random anecdote: I first saw Taxi Driver at the apartment of Ken Kurson, who was at the U of C around the same time as Rick and I. He now edits the Trump-in-law owned New York Observer.)  On the other hand, Trump’s views on monetary policy are disturbingly sane:

“The best thing we have going for us is that interest rates are so low,” says Trump, comparing the U.S. to a homeowner refinancing their mortgage. “There are lots of good things that could be done that aren’t being done, amazingly.”

 

The new normal at the Fed. Here’s a useful piece from Tracy Alloway criticizing the idea that central banks will or should return to the pre-2008 status quo.  It’s an easy case to make but she makes it well. This is a funny moment to be teaching monetary policy. Textbooks give a mix of the way things were 40 years ago (reserve requirements, the money multiplier) and the way things were 10 years ago (open market operations, the federal funds rate). And the way things are now? Well…

 

Me at the Jacobin. The Jacobin put up the transcript of an interview I did with Michel Rozworski a couple months ago, around the debates over potential output and the possibilities for fiscal stimulus. It’s a good interview, I feel good about it. Now, Noah Smith (on twitter) raises the question, when you say “the people running the show”, who exactly are you referring to? It’s a fair question. But I think we can be confident there is a ruling class, and try to understand its intentions and the means through which they are carried out, even if we’re still struggling to describe the exact process through which those intentions are formed.

 

Me on Bloomberg TV. Joe Weisenthal invited me to come on “What’d You Miss” last week, to talk about that BIS paper on bank capital and shareholder payouts. Here’s a helpful post by Matthew Klein on the same topic. And here is the Fed paper I mention in the interview, on the high levels of bank payouts to shareholders during 2007-2009, when banks faced large and hard to predict  losses from the crisis and, in many cases, were simultaneously being supported in various ways by the Fed and the Treasury.

 

Links for April 12

Maybe I should aspire to do a links post like this once a week. Today is Tuesday; is Tuesday a good day? Or would it be better to break a post like this into half a dozen short ones, and put them up one at a time?

Anyway, some links and thoughts:

 

Public debt in the 21st century. Here is a very nice piece by DeLong, arguing that over the next 50 years, rich countries should see a higher level of public expenditure, and a higher level of public debt, and that even much higher debt ratios don’t have any important economic costs. There’s no shortage of people making this general case, but this is one of the better versions I’ve seen.

The point that the “sustainability” of a given deficit depends on the relation between interest rates and growth rates has of course been made plenty of times, by people like Jamie Galbraith and Scott Fullwiler. But there’s another important point in the DeLong piece, which is that technological developments — the prevalence of increasing returns, the importance of information and other non-rival goods, and in general the development of what Marx called the “cooperative form of the labour process” — makes the commodity form  less and less suitable for organizing productive activity. DeLong sees this as an argument for a secular shift toward government as opposed to markets as our central “societal coordinating mechanism” (and he says “Smithian market” rather than commodity form). But fundamentally this is the same argument that Marx makes for the ultimate supercession of capitalism in the penultimate chapter of Capital.

 

Short-termism at the BIS. Via Enno Schroeder, here’s a speech by Hyun Song Shin of the BIS, on the importance of bank capital. The most interesting thing for my purposes is how he describes the short-termism problem for banks:

Let me now come back to the question as to why banks have been so reluctant to plough back their profits into their own funds. … we may ask whether there are possible tensions between the private interests of some bank stakeholders versus the wider public interest of maintaining a soundly functioning banking system… shareholders may feel they can unlock some value from their shareholding by paying themselves a cash dividend, even at the expense of eroding the bank’s lending base.

As many of the shareholders are asset managers who place great weight on short-term relative performance in competition against their peers, the temptation to raid the bank’s seed corn may become too strong to resist. … These private motives are reasonable and readily understandable, but if the outcome is to erode capital that serves as the bank’s foundation for lending for the real economy, then a gap may open up between the private interests of some bank stakeholders and the broader public interest.

Obviously, this is very similar to the argument I’ve been making for the corporate sector in general. I especially like the focus on asset managers — this is an aspect of the short-termism story that hasn’t gotten enough attention so far. People talk about principal-agent problems here in terms of management as agents and shareholders as principals; but only a trivial fraction of shares are directly controlled by the ultimate owners, so there are plenty of principal-agent problems in the financial sector itself. When asset managers’ performance is evaluated every year or two — not to mention the performance of the individual employees — the effective investment horizon is going to be short, and the discount rate correspondingly high, regardless of the preferences of the ultimate owners.

I also like his diplomatic rejection of a loanable-funds framework as a useful way of thinking about bank lending, and his suggestion that the monetary-policy and supervisory functions of a central bank are not really distinct in practice. (I touched on this idea here.) The obligatory editorializing against negative rates not so much, but I guess it comes with the territory.

 

Market failure and government failure in the euro crisis. This piece by Peter Bofinger gets at some of the contradictions in mainstream debates around the euro crisis, and in particular in the idea that financial markets can or should “discipline” national governments. My favorite bit is this quote from the German Council of Economic Experts:

Since flows of capital as well as goods and services are market outcomes, we would not implicate the ‘intra-Eurozone capital flows that emerged in the decade before the crisis’ as the ‘real culprits’ …Hence, it is the government failures and the failures in regulation … that should take centre-stage in the Crisis narrative.

Well ok then!

 

Visualizing the yield curve. This is a very nice visualization of the yield curve for Treasury bonds since 1999. Two key Keynesian points come through clearly: First, that the short-term rate set by policy has quite limited purchase on the longer term market rates. This is especially striking in the 2000s as the 20- and 30-year rates barely budget from 5% even as the short end swings wildly. But second, that if policy rates are held low enough long enough, they can eventually pull down market rates. The key Keynes texts are here and here; I have some thoughts here, developed further here.

 

Trade myths. Jim Tankersley has a useful rundown in the Washington Post on myths about trade and tariffs. I’m basically on board with it: You don’t have to buy into the idolatry of “free trade” to think that the economic benefits of tariffs for the US today would be minimal, especially compared with the costs they would impose elsewhere. But I wish he had not bought into another myth, that China is “manipulating” its exchange rate. Pegged exchange rates are in general accepted by orthodoxy; for much of modern history they were the norm. And even where exchange rates are not officially pegged or targeted, they are still influenced by all kinds of macroeconomic policy choices. It’s not controversial, for instance, to say that low interest rates in the US tend to reduce the value of the dollar, and thereby boost US net exports. Why isn’t that a form of currency manipulation? (To be fair, people occasionally suggest that it is.) I heard Joe Stiglitz put it well, at an event a year or two ago: There is no such thing as a free-market exchange rate, it’s just a question of whether our central bank sets it, or theirs does. And in any case, the Bank of China’s purchase of dollars has to be considered alongside China’s capital controls, which — given the demand of wealthy Chinese for dollar assets — tend to raise the value of the renminbi. On net, the effect of Chinese government interventions has probably been to keep the renminbi “artificially” high, not low. (As I’ve been saying for years.)

 

The politics of the minimum wage. Here is a nice piece by Stephanie Luce on the significance of New York’s decision to raise the minimum wage to $15. Also in Jacobin, here’s Ted Fertik on why our horrible governor signed onto this and the arguably even more radical paid family leave bill.

It would be a great project for some journalist — I don’t think it’s been done — to explore how, concretely, this was won — the way the target was decided, what the strategy was, who was mobilized, and how. In mainstream press accounts these kinds of reforms seem to spring fully formed from the desks of executives and legislators, midwifed by some suitably credentialed experts. But when you dig beneath the surface there’s almost always been years of grassroots organizing before something like this bears fruit. The groups that do that work tend to avoid the press, I think for good reasons; but at some point it’s important to share with a wider public how the sausage got made. My impression in this case is that the key organizing work was done by Make the Road, but I’d love to see the story told properly. I haven’t yet read my friend Mark Engler’s new book, This Is an Uprising, but I think it has some good analysis of other similar campaigns.

“Sustained Pressure Gets a Response”

Here’s my brother on MSNBC talking about Ferguson. He makes an important point: In the vast majority of police shootings a grand jury is never even convened. We can recognize the gross injustice of the non-indictments there and in Staten Island, and still remember that even the minimal steps toward accountability in these cases would never have happened without people in the streets.