Monetary correspondent and podcast host Felix Salmon joins co-hosts V.V. Ganeshananthan and Whitney Terrell to debate the debt ceiling disaster and his new guide The Phoenix Financial system: Work, Life, and Cash within the New Not Regular. Salmon unpacks the political and monetary ramifications of our present debt ceiling disaster—and compares the current deadlock to prior debt ceiling fights.

He additionally discusses the underappreciated and sudden financial results of the COVID pandemic, together with a rise within the monetary well being of decrease earnings Individuals and a redistribution of inhabitants away from main cities. Salmon reads from The Phoenix Financial system, and explains how the pandemic will proceed to alter our financial lives.

Try video excerpts from our interviews at Lit Hub’s Digital Guide Channel, Fiction/Non/Fiction’s YouTube Channel, and our web site. This episode of the podcast was produced by Anne Kniggendorf, and edited by Hannah Karau.

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From the episode:

V.V. Ganeshananthan: I’m an enormous fan of what you name “this inflow of capital into the working lessons.” It reveals that we are able to affect financial high quality of life in decrease earnings brackets, if we need to. The query is, will we nonetheless need to try this? Will this proceed in any means? The work necessities that the Republicans need for Medicaid are shifting in precisely the other way, it appears to me.

Felix Salmon: So it actually type of is determined by how you consider “we.” A number of these discussions take into consideration “we” as being the federal government, proper? The federal government writes checks to the poor, and the poor do nicely, or the federal government imposes work necessities on the poor, and the poor do much less nicely. The poor are simply sitting there as comparatively powerless people in America. They wind up successfully doing as nicely or as badly because the U.S. authorities desires them to do, and the ability, it simply sits in Washington.

I believe what we noticed in the course of the pandemic was the rise not solely in incomes of the poor, but in addition within the energy of the poor. They discovered themselves with bargaining energy for the primary time. The relation between labor and capital began turning into rather more even for the primary time that, roughly, any of us can bear in mind. The poor began having the ability to give up their jobs and discover higher paying new jobs. They began having the ability to unionize, and so they began having the ability to demand increased wages.

And employers began realizing that they wanted to pay individuals extra with a purpose to get them to do work. All of this stuff occur exterior this query of: “ought to the federal government impose work necessities on Medicare and issues like that?”

So, sure, we are able to have debates in regards to the authorities. And clearly, what the federal government does to the poor is essential, and poverty discount applications are essential. However beneath that, what we noticed in the course of the pandemic, and I believe that is right here for this foreseeable future, is definitely one thing extra highly effective nonetheless, in a means, which is that we’ve empowered the working lessons to demand higher working circumstances and higher pay.

Whitney Terrell: I really like that. I imply, I’m a fan of that. It’s a very outstanding factor as a result of it has been a very long time because you’ve seen individuals be capable to cut price for higher wages, at the very least in my anecdotal reminiscence of the final 20 years. There are some points, although, and I’m wondering how they’re going to have an effect on that a part of it. Within the guide, you talked about how extraordinarily low rates of interest are, which have now modified within the final yr as a result of the Federal Reserve has raised charges considerably.

And the opposite factor that I considered was immigration. I imply, Trump instantly closed the borders utilizing this regulation that was related to influenza and completely different illnesses, saying which you could deny asylum to anybody who is perhaps bringing a illness in the USA. They only stopped doing that. So I’m wondering, might you discuss these two points at that degree?

FS: I can touch upon the immigration course of. I believe the very first thing that you must perceive about immigration, and I’ll touch upon rates of interest in a minute, however the factor it’s important to perceive about immigration is that it’s good for each labor and capital in a bizarre means. Clearly, corporations need new individuals to do the roles. We’ve a serious labor scarcity in the USA proper now, which was prompted largely by Covid. Lots of people died, lots of people acquired lengthy Covid, and lots of people simply acquired, you already know, a sense of “YOLO. I don’t like my job, and I’m going to give up it to go and lay on the seaside or begin my very own firm.”

So we do have this extremely low unemployment price that’s inflicting a labor scarcity, and immigration would assist alleviate a few of that labor scarcity. However immigration—  and that is one thing which economists have actually studied for many years—on the margin, doesn’t actually have any enormous impact on wages, however in all probability brings them up quite than down. The immigrants wind up beginning corporations and using individuals and growing demand for labor and rising the scale of the financial system. And most vibrant economies have fairly robust levels of immigration and the extra immigration America has, traditionally talking, the higher its financial system has finished and the higher off its staff have been. So I believe we will be pro-immigration whereas nonetheless wanting extra energy for the working lessons. I believe it’s straightforward to carry each of these two concepts in your head on the similar time.

And rates of interest are barely extra attention-grabbing. You realize, the entire level of the Federal Reserve elevating rates of interest is to chill demand within the financial system; they thought that the financial system was operating too sizzling. They only needed corporations to decelerate a bit and rent fewer individuals and attempt to cut back demand for labor, amongst different issues. That can positively present up in diminished demand for staff within the backside half of the earnings distribution, for certain, however one of many bizarre issues is it has proven up, initially, principally within the high half of the earnings distribution.

WT: Yeah, that’s what I’ve been noticing, the software program engineers are getting laid off.

FS: Precisely. The large layoffs have been in locations like Google and Amazon and Fb, proper? They haven’t been in quick meals joints. So you already know, possibly that’s the way in which we are able to cut back demand, by shedding just a few software program engineers making half 1,000,000 {dollars} a yr, and so they’ll have to search out some new job paying $400,000 a yr. That might have the identical impact.

VVG: That is fascinating. I’m curious, and I believe we’re in all probability going to do an entire separate episode about this later, however I’m actually interested in your tackle how this can slot in—I’ve been studying all of these items about efforts in numerous states to loosen the laws on labor by minors. And in addition, in fact, there have been some exposes in regards to the exploitation of migrant youngsters for labor. But it surely looks like two separate issues, like each this type of performative Republican effort to be like, “we would like our kids to work,” and it’s additionally an try to, indirectly, deal with this labor scarcity, that isn’t immigration. I’m simply curious what you consider that and what potential affect, if any, it should have.

FS: Proper. There’s an entire bunch of very, very separate points being conflated right here. One is that type of nostalgic Republican concept of like, “I had a paper route after I was a teen, and it was nice for me, and I realized the ability of the greenback and the ability of exhausting work, and we should always encourage our kids to search out jobs like that.”

That type of factor performs nicely with a sure a part of the voters, and it’s utterly unrelated to the opposite factor that’s taking place, which is real exploitation of minors who’re being compelled into work and typically not paid in any respect, who are sometimes migrants who are sometimes undocumented, who are sometimes simply being utterly exploited. And that’s, and at all times has been, and at all times needs to be unlawful. It’s not likely being enforced tremendous exhausting in all states. However even when you go legal guidelines, type of saying we should always enable youngsters to work, like the intense exploitation of migrants is one thing that isn’t going to be made authorized and clearly shouldn’t.

WT: All proper, so let’s say we default, let’s say they don’t get it put collectively. Okay. So what would occur? The inventory market would crash, I assume. It went down like 19 %, I believe, in 2011 once we acquired near it. The bond market would go haywire. Possibly the U.S. would get one other S&P downgrade on its debt, which is what occurred additionally in 2011, if I’m remembering proper. Or possibly that was an earlier yr, you may inform me. Would this actually have an effect on individuals who don’t have massive inventory and bond holdings? Within the guide you identified that the enforced hibernation of Covid really had some advantages, proper? Is it doable {that a} debt default and ensuing financial winter would have a number of the similar advantages? Particularly for the working class? We simply do the identical factor? Oh, yeah, we get extra stimulus, everybody stays dwelling. It’ll be good.

FS: Okay. My thesis within the guide is that we’re in “the brand new not regular” and plenty of sudden issues occur. And we’ve to be open to loopy, sudden occasions. And I suppose that, in precept, a U.S. authorities default abruptly being a very good factor could be extraordinarily sudden. I additionally assume it will be extremely unlikely. There may be loads of doom and gloom being wheeled out by way of what would occur within the occasion of default, as a result of we haven’t defaulted actually, since 1878.

We don’t actually know, so I can’t inform you what would occur. However what I can inform you is that the Treasury Bond market is the bedrock upon which all the international monetary system sits, and people very secure and predictable money flows by way of the curiosity funds on Treasury Bonds coming from the U.S. authorities and flowing into all the international monetary system is what retains the worldwide financial system shifting. With out these flows, every part grinds to an instantaneous halt. The cash doesn’t go the place it must go.

Felix Salmon

•  The Phoenix Financial system: Work, Life, and Cash within the New Not Regular  •  Slate Cash podcast

Others:

 •  “A Transient Historical past of Debt Ceiling Crises” by Raymond Scheppach