Felix Salmon on the Debt Ceiling Crisis and the Surprising Resilience of the COVID Economy ‹ Literary Hub

Economic correspondent and podcast host Felix Salmon joins co-hosts V.V. Ganeshananthan and Whitney Terrell to go over the debt ceiling crisis and his new book The Phoenix Economy: Function, Life, and Revenue in the New Not Typical. Salmon unpacks the political and economic ramifications of our present debt ceiling crisis—and compares the present impasse to prior debt ceiling fights.

He also discusses the underappreciated and unexpected financial effects of the COVID pandemic, which includes an enhance in the economic wellness of decrease revenue Americans and a redistribution of population away from main cities. Salmon reads from The Phoenix Economy, and explains how the pandemic will continue to adjust our financial lives.

Verify out video excerpts from our interviews at Lit Hub’s Virtual Book Channel, Fiction/Non/Fiction’s YouTube Channel, and our web page. This episode of the podcast was created by Anne Kniggendorf, and edited by Hannah Karau.

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From the episode:

V.V. Ganeshananthan: I’m a significant fan of what you get in touch with “this influx of capital into the operating classes.” It shows that we can influence financial high quality of life in decrease revenue brackets, if we want to. The query is, do we nevertheless want to do that? Will this continue in any way? The perform needs that the Republicans want for Medicaid are moving in precisely the opposite path, it appears to me.

Felix Salmon: So it genuinely type of depends on how you assume about “we.” A lot of these discussions assume about “we” as becoming the government, suitable? The government writes checks to the poor, and the poor do properly, or the government imposes perform needs on the poor, and the poor do much less properly. The poor are just sitting there as comparatively powerless folks in America. They wind up properly carrying out as properly or as badly as the U.S. government desires them to do, and the energy, it just sits in Washington.

I assume what we saw in the course of the pandemic was the rise not only in incomes of the poor, but also in the energy of the poor. They discovered themselves with bargaining energy for the initially time. The relation among labor and capital began becoming a lot additional even for the initially time that, additional or much less, any of us can recall. The poor began becoming in a position to quit their jobs and uncover far better paying new jobs. They began becoming in a position to unionize, and they began becoming in a position to demand greater wages.

And employers began realizing that they required to spend folks additional in order to get them to do perform. All of these issues come about outdoors this query of: “should the government impose perform needs on Medicare and issues like that?”

So, yes, we can have debates about the government. And definitely, what the government does to the poor is quite essential, and poverty reduction applications are important. But underneath that, what we saw in the course of the pandemic, and I assume this is right here for this foreseeable future, is really anything additional effective nevertheless, in a way, which is that we’ve empowered the operating classes to demand far better operating situations and far better spend.

Whitney Terrell: I like that. I imply, I’m a fan of that. It is a genuinely exceptional point for the reason that it has been a lengthy time because you have noticed folks be in a position to bargain for far better wages, at least in my anecdotal memory of the final 20 years. There are some challenges, although, and I wonder how they’re going to have an effect on that aspect of it. In the book, you talked about how particularly low interest prices are, which have now changed in the final year for the reason that the Federal Reserve has raised prices drastically.

And the other point that I believed about was immigration. I imply, Trump right away closed the borders working with this law that was related with influenza and various illnesses, saying that you can deny asylum to everyone who may well be bringing a illness in the United States. They just stopped carrying out that. So I wonder, could you speak about these two challenges at that level?

FS: I can comment on the immigration procedure. I assume the initially point you require to comprehend about immigration, and I’ll comment on interest prices in a minute, but the point you have to comprehend about immigration is that it is superior for each labor and capital in a weird way. Certainly, providers want new folks to do the jobs. We have a main labor shortage in the United States suitable now, which was triggered largely by Covid. A lot of folks died, a lot of folks got lengthy Covid, and a lot of folks just got, you know, a feeling of “YOLO. I do not like my job, and I’m going to quit it to go and lay on the beach or start out my personal enterprise.”

So we do have this extremely low unemployment price that is causing a labor shortage, and immigration would enable alleviate some of that labor shortage. But immigration—  and this is anything which economists have genuinely studied for decades—at the margin, does not genuinely have any massive impact on wages, but possibly brings them up rather than down. The immigrants wind up beginning providers and employing folks and escalating demand for labor and developing the size of the economy. And most vibrant economies have quite robust degrees of immigration and the additional immigration America has, historically speaking, the far better its economy has performed and the far better off its workers have been. So I assume we can be pro-immigration when nevertheless wanting additional energy for the operating classes. I assume it is quick to hold each of these two tips in your head at the exact same time.

And interest prices are slightly additional intriguing. You know, the entire point of the Federal Reserve raising interest prices is to cool demand in the economy they believed that the economy was operating as well hot. They just wanted providers to slow down a bit and employ fewer folks and attempt to lower demand for labor, amongst other issues. That will undoubtedly show up in lowered demand for workers in the bottom half of the revenue distribution, for positive, but one particular of the weird issues is it has shown up, initially, mainly in the best half of the revenue distribution.

WT: Yeah, that is what I’ve been noticing, the computer software engineers are acquiring laid off.

FS: Precisely. The significant layoffs have been in locations like Google and Amazon and Facebook, suitable? They haven’t been in quick meals joints. So you know, possibly that is the way we can lower demand, by laying off a handful of computer software engineers creating half a million dollars a year, and they’ll have to uncover some new job paying $400,000 a year. That could have the exact same impact.

VVG: This is fascinating. I am curious, and I assume we’re possibly going to do a entire separate episode about this later, but I’m genuinely curious about your take on how this will match in—I’ve been reading all of this stuff about efforts in various states to loosen the regulations on labor by minors. And also, of course, there have been some exposes about the exploitation of migrant kids for labor. But it appears like two separate issues, like each this type of performative Republican work to be like, “we want our kids to perform,” and it is also an try to, in some way, address this labor shortage, that is not immigration. I’m just curious what you assume about that and what possible effect, if any, it will have.

FS: Proper. There’s a entire bunch of quite, quite separate challenges becoming conflated right here. 1 is that type of nostalgic Republican concept of like, “I had a paper route when I was a teenager, and it was wonderful for me, and I discovered the energy of the dollar and the energy of difficult perform, and we really should encourage our kids to uncover jobs like that.”

That type of point plays properly with a specific aspect of the electorate, and it is fully unrelated to the other point that is taking place, which is genuine exploitation of minors who are becoming forced into perform and often not paid at all, who are typically migrants who are typically undocumented, who are typically just becoming fully exploited. And that is, and often has been, and often really should be illegal. It is not genuinely becoming enforced super difficult in all states. But even if you pass laws, sort of saying we really should permit youngsters to perform, like the intense exploitation of migrants is anything that is not going to be produced legal and definitely shouldn’t.

WT: All suitable, so let’s say we default, let’s say they do not get it place with each other. Okay. So what would come about? The stock marketplace would crash, I assume. It went down like 19 %, I assume, in 2011 when we got close to it. The bond marketplace would go haywire. Perhaps the U.S. would get a further S&ampP downgrade on its debt, which is what occurred also in 2011, if I’m remembering suitable. Or possibly that was an earlier year, you can inform me. Would this genuinely have an effect on folks who do not have huge stock and bond holdings? In the book you pointed out that the enforced hibernation of Covid really had some advantages, suitable? Is it doable that a debt default and ensuing financial winter would have some of the exact same advantages? In particular for the operating class? We just do the exact same point? Oh, yeah, we get additional stimulus, absolutely everyone stays property. It’ll be superior.

FS: Okay. My thesis in the book is that we’re in “the new not normal” and lots of unexpected issues come about. And we have to be open to crazy, unexpected events. And I suppose that, in principle, a U.S. government default all of a sudden becoming a superior point would be particularly unexpected. I also assume it would be extremely unlikely. There is a lot of doom and gloom becoming wheeled out in terms of what would come about in the occasion of default, for the reason that we haven’t defaulted genuinely, because 1878.

We do not genuinely know, so I cannot inform you what would come about. But what I can inform you is that the Treasury Bond marketplace is the bedrock upon which the whole worldwide economic method sits, and these quite steady and predictable money flows in terms of the interest payments on Treasury Bonds coming from the U.S. government and flowing into the whole worldwide economic method is what keeps the worldwide economy moving. Without the need of these flows, anything grinds to an instant halt. The dollars does not go exactly where it requirements to go.

Felix Salmon

•  The Phoenix Economy: Function, Life, and Revenue in the New Not Typical  •  Slate Revenue podcast

Other folks:

 •  “A Short History of Debt Ceiling Crises” by Raymond Scheppach