interviews
Labor and the White House
by Dave Weigel
March 31, 2021
This interview with Dave Weigel, national reporter covering politics for the Washington Post, was conducted and condensed by franknews and Payday Report.
DW | The White House's involvement in the Amazon union drive was a big surprise. I mean, we know where it could have originated, the union talked to the White House; they have kind of an open door with Biden that they didn't have with Trump. We know that Faiz Shakir, Bernie Sanders’ campaign chairman, and his group, Perfect Union, got involved. So, there was public pressure.
The fact that the White House and the president released that video was a big deal to people. And, he made this decision to get involved very early on in his presidency. It was within his first 50 days. He decided to do what hadn't been done before and give a message in support of the union. It was a very careful message. The new labor secretary, Marty Walsh, when asked specifically about Amazon, responded in more general tones.
But, no matter what happens, if you are in for a penny, you are in for a pound.
A lot of previous presidents, including Barack Obama, said a lot less about these union drives and, in doing so, limited their own exposure. If the drive didn't work, people didn't say that the president supported something that didn't work. The fact that Biden made a statement, early on, when it wasn't clear how this was going to go, is a real political statement of what they thought was important.
frank | How do you think his background plays a role in this?
He's always leaned in really hard and identified with workers in the same way he's tried to identify with different civil rights movements. Joe Biden has always wanted to be seen as the kind of person who is coming from Scranton, who has lived through the sixties, and who wants to jump to the front of the march if there is a struggle happening.
He frames everything in terms of fairness. He's not as natural as other members of the party in talking about this. When Bernie Sanders talks about this, for example, he talks about greed, he names CEOs, he says nobody deserves that much money, he talks about a maximum wage and how there should be no billionaires at all. Biden doesn't go that far. Biden has never gone after Jeff Bezos. He's never gone after individual heads of companies the way that Sanders does. He does this sort of a "Hey man, these guys are under assault, somebody needs to stick up for them."
That is something that he has always wanted to be part of his brand. Even when he was voting for trade deals like NAFTA as a Senator, he was never really comfortable. He had the same ideological mindset as a lot of the Democrats in the eighties and the nineties. He did it because he saw that that was the way things were moving and he voted strategically. But, the stuff that fired him up was when he could side with workers. It is the same thing with the projects he took on under Obama when he was Vice President.
During the Democratic primary, he didn't get the same amount of labor support that Hillary Clinton did, but, Sanders didn't get it either. There wasn't the same sort of a landslide of labor to get in early and say, this is our candidate. Instead, they were demanding more of the candidates.
I would cover presidential primary events with the Teamsters in Cedar Rapids or the Building Trades in DC and you would kind of look to the level of applause as an indicator. The interesting thing is that at those events Sanders would lay out the things he did and what he wanted to pass. Biden would go on at length about non-compete clauses and about wage theft and things like that. It was less, "I have studied all of the papers on this and I've decided this is my policy," and more of "this seems unfair and I'm against this thing."
I think the Democratic Party is increasingly understanding what labor can mean for them strategically.
Republicans have gotten kind of tangled up on labor. They have done better with union households, but they are basically the party of deregulation still. They've never really moved on the labor part of their messaging. That makes it easier for Biden to compete for these workers. When it comes down to it, Republicans want “right-to-work." Josh Hawley, who branded himself as a working-class candidate, for example, supports a national right-to-work.
Biden was very concerned with winning back more union households. Union workers were saying, “Democrats had the presidency for 16 years. What do they do for us?” Biden didn't have all the answers that labor wanted, but he was making a lot of specific promises about how he was going to act. He talked about infrastructure spending and about how he was going to run the NLRB and how he was going to approach employers. It was less than Sanders did, but that's way more than Democrats had done in the past.
I mean, the McCain/Romney era Republicans had no appeal to the sort of voters who voted for Obama twice and then voted for Trump. Biden only peeled back maybe 10% of them depending on where you're talking about, but it has made life easier for Democrats.
This fight has in large part been framed in the context of continuing a battle for civil rights. Do you see Biden lean into that messaging?
Biden did not really lean to the racial justice aspect or the civil rights legacy aspect of this labor fight. When the congressional delegation here came down a couple of weeks before the vote, they were much more explicit. Someone like Jamal Bowman or Cori Bush is much more comfortable saying that than Biden. That is the thing about Biden. He basically sets boundaries. He says what his position is and backs off and lets the action happen without his constant commentary. It's very different than Trump in that way too. And that's different than the Sanders position. And it's different than what Warren said her position would be as president.
Can you give us context on how or why you started covering this story?
I started covering the Amazon drive because of the president and members of Congress intervening. I mean, labor decided to get involved months before, but the fact that Democrats were getting involved was new. It has been interesting to monitor their investment in this over other Democratic Party causes.
There's a little bit of intervention from the Democrats, but not, I'd say equal to what Amazon is doing. They are not the advertisements on TV. We all know the Democratic party is kind of involved, but it is not the same political project that I've seen in other places.
There are two stories that kind of were happening at the same time; they have merged, but not completely. One is this labor drive, which is smaller than most drives that have succeeded. It is not overwhelming. You don't see labor signs everywhere you go. But, on the other hand, the level of national involvement is kind of new.
Had Biden said nothing, there would have been a story, but it wouldn't involve the White House, it wouldn't involve the Democratic Party, and it might not involve the PRO Act.
And I think that's going to change because of this.
New interview w/ @daveweigel @PaydayReport
— frank news (@FrankNewsUS) April 6, 2021
"The White House's involvement with the Amazon drive was a big surprise ... Previous presidents, Obama comes to mind, said a lot less. The fact that Biden did that early on is a political statement of what they thought was important." pic.twitter.com/MwYlmqE4xQ
That was a big decision Biden made to be a part of this.
Right. And that political story is interesting. The story here is much more independent. A lot of the people who've come in to help canvas are from smaller groups. You have Black Lives Matter and DSA groups from the area, but you don't have the Democratic Party getting involved in a huge way. I think that is something that people will revisit after the vote.
Should the Democratic Party, like most left parties in the world, be very involved with labor? Should they always take the side of labor?
Most social democratic parties are labor parties and they build up from there. Their coalition includes labor unions. In the British Labour Party, for example, labor has a role in electing the leadership. That is not the case here. That's the conversation I think they're going to start having when this votes over. For example, if there are, and the union says there are, hundreds of people around the country calling them saying, "Hey, I have some questions about what I can do at my fulfillment center in my town," that will be a question for Democrats.
And if Amazon wins, do you get spooked? Amazon has been very punchy in their PR. They might say that a bunch of elite Democrats stood with the union and the workers stood with Amazon. That is very comfortable turf for Amazon to be on, and that leaves a big question open for Democrats. If the union succeeds, throw all of that out the window. I think the lesson that everyone would take in that case would be that if it takes less than a three-minute video from the president to get momentum for something like this, then we should keep doing that. As we talk, I don't know the answer to that question. I think that is something that is going to be answered when the votes are in.
interviews
The Saving Glut of the Rich
by Ludwig Straub
September 22, 2020
This interview with Ludwig Straub, assistant professor at Harvard, was conducted and condensed by franknews.
Ludwig | I started working on inequality and debt related issues during my Ph.D, and since then I have been fascinated by how the distribution of resources across households can have macroeconomic impacts. Inequality and debt are just two examples of how these distributional aspects matter to the economy.
frank | To begin, what is the general economic understanding of the role debt plays in financial crises?
Debt is an important contributor to, and sometimes the cause of, economic crises.
Obviously, it does not cause all economic crises, as we have seen with the COVID crisis, but we have fantastic evidence as to the role that debt plays -- like that from my coauthors Atif Mian and Amir Sufi as well as Moritz Schularick and Alan M. Taylor -- who find that household debt run-ups for multiple years often culminate in a large, subsequent economic crisis.
We also see that debt can make financial crises, meaning the crises in which banks lose a lot of their equity, worse. Studies show that financial crises that occur after such household debt run-ups are much worse than other types of financial crises.
Why is a household holding debt dangerous to the economy?
Typically there's some kind of a saving glut – meaning there is a large amount of saving in the economy. This can be a global saving glut, or a domestic savings glut, like the savings glut of the rich that we write about.
Once that saving glut enters an economy, its financial system needs to digest it. In practice, this means the financial intermediaries, such as banks, who are holding the funds, will look for investment opportunities. They might increase lending to businesses and households. If there's not enough demand for those funds from businesses, the funds will flow to households and we will start to see households being offered lower and lower interest rates. We will see households get increased advertisements for using debt to finance all sorts of purchases, even those for every day goods such as furniture or appliances. That sort of thing becomes more and more prevalent the more desperate the financial system is to invest -- in other words, lend -- the funds originating from the saving glut.
One very natural thing that happens here is that people will be more likely to buy a house or a larger house, using mortgage debt. This demand raises house prices, and will ultimately start feeding on itself: if you have five, six, or seven years of steady house price growth, at some point, people irrationally believe that house prices will continue to grow forever. If that is your belief, then anyone’s best response is to go out and invest in housing, raising the price of housing even more. We call this a housing bubble. And all of it is financed by debt.
The problem is that at some point the bubble will burst, and households will see that they have accumulated a large amount of debt and that their investments are not doing so well anymore. As a result, they start cutting back on their spending. What's very important to understand here is that these are often middle-class people, people with high marginal propensities to consume. When they get worried about the depreciating value of their home, or about losing their job, they're going to respond with a dramatic cut in spending.
This is a key distinction between bubbles that happen in the housing market compared to bubbles that happen in the stock market. The majority of the stock market wealth is held by the top few percent of the wealth distribution. The wealthy typically have a low marginal propensity to consume. If they lose wealth in the stock market, they're not going to cut back their spending in a significant way.
That distinction explains why housing bubbles have much stronger effects on the real economy.
Is that a widely accepted view of debt and crises, specifically in the 2008 crisis?
There are two broad views on the 2008 crisis, and they each have their own set of supporters. Nearly everybody agrees that household debt and the housing bubble in the early 2000s played a role in the crisis and that we did have a crisis in the financial sector. The two camps just differ on how much weight they put on either factor.
Is the saving glut always tied to inequality?
A savings glut can happen in many different ways. I'll give you a few examples.
For the global savings glut of the early two-thousands, we need to look at what happened in 1997. After the East Asian financial crisis in 1997, central banks in East Asia feared they might run out of foreign reserves again, so they began and have continued to purchase massive amounts of U.S. treasuries. U.S. treasures are the go-to asset for central banks wanting to accumulate reserves outside of their country. Another well-studied source of a saving glut is an aging population. As people get older, there are more wealthy, older households compared to less wealthy, younger households. That is a phenomenon that is very pronounced in Italy and Japan, for example.
In our research, we focus on the saving glut that has emanated from rising inequality. The key idea is quite intuitive.
When you speak to the idea that more saving means more lending to households, what does that decision-making process look like?
That is something we don't have a definitive answer to yet. For instance, one of the big surprises that we found in our work is that when presented with that strong increase in saving, the financial system did not successfully channel those funds into businesses.
One of the most well-known relationships in macroeconomics is that saving is equal to investment. If there are more savings, typically the lending rate will go down, and businesses invest more. The thought is that we will have more investment overall and stronger growth; everybody will be better off no matter where the saving is coming from, whether it is from abroad or from the rich.
Quite frankly that surprised us. It goes against the standard logic macroeconomists grow up with.
More research is needed to understand whether the fact that the funds did not flow to businesses is because businesses didn't seem to want the investment, or if banks had preferences against lending to businesses and instead preferred to lend to households. I don't know the answer to that question, but I'm very interested in doing more work on it.
Are there policy solutions to look towards?
There are a number of solutions.
One possible solution is to have governments invest more. If businesses are not investing, why don't governments take advantage of low lending rates and invest, for instance, in infrastructure? Public investment has never been so low, and it has been falling over the past few decades. That could be one way to substitute for some of the missing private investment.
Another solution is redistribution, away from richer savers towards less rich spenders. And that is important for several reasons. One is that a heavily indebted population reduces demand. Whenever an economy generates less demand, central bankers cut their interest rates in order to stimulate the economy as much as they can. Currently, we are at zero percent interest rates, which means that one of the big steering wheels we used to navigate past crises is out the window. We are up against a constraint – we can’t go lower with interest rates than the zero lower bound. That is a major challenge that is coming about from too much borrowing in the bottom rungs of the wealth distribution.
How do you see the role of debt in the crisis we are in now?
The precise role remains to be seen, but there are already a few indicators as to what the role might be.
So far, household debt seems relatively stable, but since the extra unemployment insurance benefits in the Cares Act have not been extended, it might be the case that households need to begin to borrow more to make ends meet. That will have all of the macroeconomic implications related to debt that we spoke about earlier. So that is something to watch.
I think that the two types of debt that are going to be most affected are corporate debt and government debt.
For corporate debt, one key issue is going to be something called debt overhang. Consider a restaurant in New York City. After the pandemic, the restaurant's debt payments may be two or three times higher than before because the owners had to borrow in order to stay in business. This level of debt can make them less willing or able to invest in new locations.
That's the debt overhang problem, and that will put an additional drag on corporate investment in the coming years. That, I think, is another factor we need to watch.
For government debt, the risk that many economists think about is that there might be a loss in confidence in the dollar as the world’s reserve currency if we don't manage to get deficits under control. I don't think this is a risk that will materialize in the next 10 years. There's still ample room to go before that risk starts to become threatening, but at some point, if there is no sign of willingness to bring deficits under control, it may certainly become a threat. In that case, we would potentially see foreign central banks turning to other assets as opposed to U.S. treasuries, like Chinese or European bonds. But to emphasize, I think this is one is, luckily for us, more of a long term problem.