This is the second of three pieces on why the U.S. federal government’s debt will never become an economic problem, no matter how much it grows. The first piece is here.

We were discussing why the U.S. national debt can never become too big. [LINK]

The three possible scenarios you hear for how a debt crisis could unfold for the federal government are 1) private lenders will cut it off from borrowing anymore, 2) federal borrowing will drive up interest rates and choke off economic growth, or 3) federal borrowing will set off hyperinflation.

We dealt with the first scenario last time: The U.S. government can never actually run out of U.S. dollars, because it’s the only entity that’s legally empowered to create U.S. dollars. It has an infinite supply of them. So even if lenders did cut the federal government off, it wouldn’t matter, because it doesn’t actually need anyone to lend it dollars.

Regardless, lenders never will cut it off, because the federal agency that creates U.S. dollars—the U.S. Federal Reserve—uses that power to buy and sell U.S. Treasury bonds from the private markets. That’s how it conducts monetary policy and sets overall interest rates in the economy. Private markets will never stop buying Treasury bonds from the federal government because the federal government will never stop buying those bonds from them. The U.S. government is the main buyer of its own debt, with the private financial markets acting as a middle man between the Treasury Department and the Fed.

But let’s forget all that for a moment and just suppose private lenders did stop investing in U.S. debt.

At that point, people worry, the federal government would change the law so the Fed can just buy bonds directly from the Treasury Department—and thus cut out the middle man out entirely.

And they worry this could lead to hyperinflation. After all, if you can create an infinite supply of something, the danger isn’t that you’ll run out of it, but that you’ll wind up too much of it. And when it comes to U.S. dollars, “too many” means hyperinflation.

Here, for instance, is Noah Smith:

Every dollar that the Fed creates and gives to the government to spend is an extra dollar in the economy. If you printed a bunch of paper money and gave it out, eventually paper money would lose its value. The same is true of digital money. If you create bazillions and bazillions of dollars, eventually people will conclude that a dollar won’t be worth much.

Federal borrowing, according to Smith, is like an infinite corridor with an invisible pit. We don’t know how far down the corridor we can go before we fall in the pit. But eventually we’ll fall in.

Is Smith and everyone else who worries about this correct? Could too much federal borrowing lead to hyperinflation? That’s our subject this time.

The Concrete Mechanics of Inflation

Let’s start by laying out how inflation works. At the most basic mechanical level, inflation is driven by spending in the economy—“spending” here being just another word for “demand.” As we all know, prices rise when demand outpaces supply. That’s true of spending on individual goods and services, and it’s true of spending in the economy as a whole—i.e. “aggregate demand.”

Imagine the economy is a pipe. The size of the pipe, and thus how big a flow of water the pipe can handle, is determined by the economy’s overall physical capacity to produce goods and services. How many resources like steel, wood, minerals, concrete, and fuel does the economy have? How many office buildings and factories and electricity generators and chemical plants are operating? How many workers there are? And so on. Unlike a literal pipe, the size of the economic pipe grows over time, allowing it to handle a larger and larger flow of water. (At least, we hope it grows over time!) But at any given moment, the economic pipe can only handle so much.

The “water” in this analogy is, of course, spending. And inflation is when the flow of “water” through the pipe is too big for the pipe to handle. So the seams burst and the bolts blow out.

Here’s the thing: there’s a crucial distinction between the amount of spending in the economy and the amount of money in the economy.

Because there’s always a ton of money in the economy that isn’t being spent. It’s called savings! Some of it’s sitting in bank accounts. Some of it’s invested in stocks and bonds and other financial assets. And a lot of it is invested in U.S. government debt—meaning U.S. Treasury bonds. (A very important point we’ll get back to.) All by themselves, Americans’ retirement savings totaled $37.8 trillion in 2023. Which is a ton of “potential” spending that hasn’t become actual spending. Actual spending in the economy was just over $27 trillion in 2023.

This all brings us to a crucial distinction to keep in mind: flows versus stocks.

Spending in the economy is a flow—a movement of a certain amount of units over a certain amount of time. Gross domestic product is also a flow. That’s why it’s measured annually, or quarterly, or whatever.

Savings, meanwhile, are a stock: an amount of money that just sits there. A stock can grow over time, but it doesn’t go anywhere.

Inflation is all about the flow.

At any given moment, the economy can only produce so many goods and services. If too much money flows through it too fast, there are no more people to hire, no more idle factories to start up, no more natural gas generators to turn on. You get the idea. Past that point, you’re just raising prices.

But our stock of savings isn’t being spent! It isn’t “flowing” anywhere. Ergo, there’s no physical limit on how big it can get. Savings are just electronic dollars in a computer somewhere. Or paper bills stuffed under a mattress. Or scribblings in a banker’s ledger, back in ye olden days. And all of those forms of saving can get as big as we want!

The Federal Deficit Versus the Federal Debt

Now we come to another crucial distinction: between the U.S. government’s budget deficit and the U.S. government’s debt.

The deficit is the gap between the federal government’s spending and its tax revenue—and thus, how much borrowing it did—measured over a given period of time. The debt is the sum total of all previous borrowing the federal government has done, and has not yet paid back.

The problem you often encounter is that everyone and their dog tends to talk about the deficit and the debt as if they’re interchangeable. Dylan Matthews did it in his piece on federal borrowing. Noah Smith did it too in the piece I mentioned at the beginning. He entitled it, “No one knows how much the government can borrow,” which suggests he’s worried about the size of the debt. Then he says this:

The government wants to borrow $100 trillion per day? The Fed can just credit their account with $100 trillion per day! This is why some people say the government has no borrowing constraint.

But borrowing $100 trillion per day is a measure of how much you’re deficit spending at a given moment. It’s not a measure of how much you’ve borrowed in total. So are we talking about a borrowing constraint or a deficit spending constraint?

This difference matters enormously, for two reasons.

First, when you reduce the budget deficit, the debt simply grows less fast. Even a tiny budget deficit will lead to a colossal debt if given enough time. To actually reduce the debt, spending must be cut or taxes must be raised (or both) so much that budget deficits reverse entirely and turn into budget surpluses. Then, to make any serious dent in the size of the debt, those surpluses must stay in place for a long time.

You need to be precise about whether you’re worried about the size of the deficit or the debt; reducing the latter is a much more radical proposition that reducing the former.

Second, as you probably noticed, the deficit is a flow, while the debt is a stock.

The deficit is how much money the federal government is spending into the economy, over and above how much money it’s taxing out. Per Smith’s example, deficit spending $100 trillion per day is a $100-trillion-per-day flow of spending into the economy. How that could cause inflation is pretty obvious: when combined with spending by private households and businesses, a big enough federal budget deficit could pump up the flow of money through the economic pipe so much that the seams burst.

So it’s perfectly reasonable to think the federal government has a deficit spending constraint.

But that’s distinct from a borrowing constraint.

Because the debt is a stock. It’s just a bunch of financial liabilities the federal government has built up. And those liabilities are financial assets for the rest of us—as mentioned, one of the main ways people save is by investing in U.S. Treasury bonds. You can quite literally think of the federal debt as a savings account the federal government runs for the benefit of the rest of the world; it gives American households and businesses, not to mention foreign governments and businesses, a place to store the excess U.S. dollars that they aren’t currently spending.

And by what possible mechanism could a stock of savings—which is, by definition, not being spent—affect inflation?

The Insidious Inflationary Threat of People Saving Too Much

Smith makes assumes that an increase in the supply of U.S. dollars inherently lowers the value of those dollars all by itself. In that first quote, he’s arguing that a big enough stock of U.S. dollars will eventually cause hyperinflation as a matter of mechanical inevitability.

But the price of something does not go down because supply goes up. It goes down because supply goes up relative to demand. The supply of U.S. dollars that decides the “price” of U.S. dollars in the economy is not how many dollars are out there in total.1 It’s how many dollars are being spent, as opposed to being saved.

Everything depends on how fast the money that you create—be it paper money or digital—enters the economy as spending. And on how many goods and services the economy can provide to absorb that spending. Money loses (or gains) its value relative to the total amount of supply the economy can create. And the pipe grows over time, remember?

This brings us back to the U.S. national debt. If it’s just everyone’s savings (and it is) then the only way it can cause hyperinflation—or even just inflation—is if it’s first turned into spending.

Of course, the bigger the U.S. national debt becomes, the more interest the federal government has to pay to private lenders. You could point to that as a form of spending that could drive inflation. Though that argument carries the amusing implication that when the U.S. Federal Reserve raises interest rates—and thus raises the federal government’s interest payments—it’s increasing, rather than decreasing, inflationary risk in the economy.

In practice, I don’t think that’s something we need to worry about. To get interest payments from the federal government, you have to own U.S. Treasury bonds. And if you’ve bought U.S. Treasury bonds, you’ve already got surplus dollars you want to save rather than spend. Which means you’ll probably just roll the interest payments on those bonds into further savings. Thus, whatever inflationary effect higher interest rates have in the economy is almost certainly completely overwhelmed by the deflationary effects.2

Anyway. The point is, to worry that the federal debt is “too big” is to worry that people’s savings are “too big.”

Specifically, you’re worried that all those savings will suddenly turn into spending. You’re worried that people will suddenly cash out all their U.S. Treasury bonds and then spend the money into the economy all at once. And the economy won’t have the capacity to handle it.

You can imagine scenarios that would drive people to do that. And we’ll get to them in a moment. But limiting the size of the federal debt as a hedge against the risk of hyperinflaton is just limiting how much people can save as a hedge against hyperinflation. You’re trying to keep everyone’s savings low enough such that, if they all did suddenly cash out their savings, it wouldn’t generate enough spending to send prices through the roof.

It’s basically: Hey everyone, some saving is fine. But let’s not save too much! Because, you know, we need to ward off the risk of hyperinflation.

And when you put it like that, it’s a kind of obviously insane.

Hyperinflation Isn’t That Mysterious

But why would everyone in the U.S. economy suddenly spend so much all at once? Hyperinflations do happen. What actually makes them happen?

Noah Smith’s answer is that we really don’t know; the ways of hyperinflation remain mysterious to the economics profession. He’d like to see a lot more study and research done on the question.

I certainly don’t object to more study and research. But with all due respect to the economics profession, I don’t think hyperinflation is particularly hard to understand.

Take smartphones: they’re both quite expensive and in high demand. Yet their price does not go up and up and up. Everyone’s desire for smartphones, their desire to save, and how much money they have to spend, are all forces that have reached a stable equilibrium.

If some disaster—a tsunami, a terrorist attack, whatever—destroyed all but one of the smartphone factories, then their price would definitely jump way up. But it wouldn’t go up forever. A lot of people would look at the new price tag and decide they can live without a smartphone. The market would reach a new equilibrium at a higher price, reflecting the new lack of supply.

Indeed, producing that sort of equilibrium is the whole point of a well-functioning market economy! And eventually, smartphones would become cheaper again, as the higher price incentivized re-investment in smartphone production. Huzzah, markets!

Now imagine that same scenario playing out with something like food, or gas. Supply suddenly becomes way more scarce, and the price jumps way up. Do a lot of consumers suddenly decide they can just do without food or gas? That they can just wait however long it takes (Months? Years?) for price signals and market incentives to drive investment and rebuild the food or gas supply chain?

I doubt it.

In that case, you can imagine the price just going up and up and up endlessly, as people desperately cash out their savings to buy whatever food or gas is available. And just never give up.3 That’s when a hyperinflationary spiral starts to look like a real possibility.

Here’s what I would suggest: Inflation is just a bidding war over scarce resources. And the bidding war ends in one of three ways. One, supply recovers so the resource is no longer scarce. Two, people decide that having the resource isn’t worth the grief and they stop bidding on it. Or three, they just run out of money with which to bid.

Hyperinflation happens when all three mechanisms fail to kick in.

For whatever reason, something physical has happened in the real world that prevents supply from recovering—or at least prevents it from recovering with anything like the necessary speed. Next, it has to be a resource that people just can’t do without, like food or energy.4 And third, money has to be flowing into the economy from some source, such that people just never run out of the spending needed to keep the bidding war going.

Hyperinflation As a Pitfall For Underdeveloped Economies

That third criteria—people just never running out of money—is where you can see a role for the federal debt. If that debt is just peoples’ savings, then the bigger it is, the more savings they’ll have to burn through before they run out of money.

But like I said, limiting how much people save in order to avoid this scenario is rather like starving people to prevent them from developing bulimia.

More often, what you see happen is that a government responds to this kind of crisis by just creating more and more money that does immediately get spent. Not surprisingly, given what we’ve covered thus far, the source of the infinite spending in a hyperinflationary crisis is government deficits, not government debt.

For one thing, hyperinflations almost always happen in countries that are still economically developing. So they haven’t yet built the domestic capacity to produce certain key needs that people can’t do without—food, energy, medicine, et cetera. So the country has to rely on imports. Often, in order to afford those imports, the country gets stuck supplying one key export to the rest of the world, like oil or cheap manufactured goods.

Then something goes terribly wrong, and what domestic production capacity the country has breaks down. If it’s supplying a key export, it can’t supply it anymore. Or its borrowed a ton of foreign currency (as opposed to its own currency) to buy those imports. And now it can’t pay those loans back. Or, most likely, some combination thereof. The upshot is the country suddenly needs a bunch of key goods which it can’t produce itself, and which it can no longer afford to import. So the domestic price of those goods goes through the roof.

Unfortunately, economically developing countries are also more likely to be ruled by incompetent dictators and autocrats. Indeed, terrible policies and economic mismanagement by said dictators and autocrats is often why the country gets into this sort of impasse in the first place.5 And once the crisis hits, rather than fix the physical breakdown in the economy’s ability to generate supply, the country’s government just prints lots of its own currency, and gives it to people so they can afford the higher prices.

But that doesn’t make the imports any more affordable in the foreign currency they’re actually purchased in. It just drives the imports’ price in the domestic currency higher and higher.

Hence, hyperinflation.

If you look at examples of hyperinflations around the world, I think you see some version of this play out again and again. Thanks to government mismanagement or some other event, there’s a catastrophic breakdown in the economy’s physical capacity to produce key things that people really can’t do without. That sets off a socially and politically brutal bidding war. And then the government responds, not by fixing the problem, but by just creating more money for people to spend in the bidding war.

But that’s all a matter of two much deficit spending too fast; not a matter of too much debt.

Hyperinflation As a Hazard of War

One takeaway here is that it’s just really, really difficult to imagine hyperinflation occurring in a prosperous, advanced, diversified economy like the United States. We’re not especially reliant on imports. Our domestic productive ability to meet our own needs is sophisticated and vast. It would take a lot of work to destroy all that.

In fact, on the very rare occasions when you do see an advanced economy plunge into hyperinflation, it’s the result of war—think Germany after World War I.

For one thing, in war, the enemy often literally destroys your economy’s physical capacity to produce stuff. But even if that doesn’t happen, war commandeers your economy in extremely unproductive ways. During peacetime, pretty much all the goods and services we make renew our capacity to produce in the future in some way. Investment obviously does this. But even most forms of consumption—food, shelter, medicine—do as well. The line between “investment” and “consumption” is actually pretty fuzzy. But war involves a lot genuinely unproductive economic activity.

You wind up devoting tons of resources to building bullets and tanks and bombs and planes that all get sent to the front and blown up. And that’s it. From a technical economic perspective, it’s all quite pointless. Meanwhile, you’re trying to keep your population going with whatever production capacity hasn’t been commandeered by the war effort. And even as you’re reducing your economy’s ability to meet everyone’s needs, you’re spending tons of money to finance the war effort.

Thus, the policies of warmaking are a recipe for inflation in a way most other government policies just aren’t.

I quipped last time that it’s hard to imagine anything short of nuclear war or a zombie apocalypse or a Hugo Chavez-style dictatorship destroying the value of U.S. Treasury bonds. Of course, a hyperinflation crisis would certainly do the trick. But that’s kind of tautological. Because it’s hard to imagine anything short of nuclear war or a zombie apocalypse or a Hugo Chavez-style dictatorship setting off a hyperinflation crisis in the U.S. dollar.

In fact, I’m not even totally sure Noah Smith’s hypothetical $100-trillion-per-day budget deficits would set off hyperinflation! A lot depends on what the government is spending that money on. If it’s employing people and buying resources directly, then yes, deficits like that would be hyperinflationary. But if it’s just giving the money to people to spend via welfare programs, it might all just get socked away into savings!6

If the first two criteria to prevent inflation are already in place—if our economy is prosperous and able to meet everyone’s needs, and the physical capacity is there to reach market equilibrium—then simply having infinite spending available to the public might not matter. I’m honestly not sure. But I think it’s a possibility you have to take seriously.

At the same time, I don’t think we need to try this out and see what happens. If anyone wants to argue that we shouldn’t deficit spend $100 trillion-per-day because it risks hyperinflation, I’d say that’s a totally reasonable concern!

What isn’t reasonable is worrying that a federal debt of $100 trillion will set off hyperinflation. Or $500 trillion. Or $100 quadrillion. Or a bazillion bazillion. Because the mechanism simply isn’t there. “Too many” people socking “too many” U.S. dollars away in U.S. Treasury bonds instead of spending them definitely isn’t going to drive prices through the roof.

Wherever a hyperinflation crisis does come from, it will not come from the size of the U.S. national debt.

I had to put my “Annoying MMT Guy” hat on in my last newsletter. I realize Modern Monetary Theory’s 15 minutes of fame came and went. But as the subject of reserve currencies shows, if you’re not clear on the fact that the U.S. government creates U.S. dollars, and thus can never run out of U.S. dollars—and thus doesn’t actually need anyone to lend it U.S. dollars—you can get very confused very quickly on a whole raft of topics.

Of course, the point that MMT is really known for is that the U.S. government can never borrow “too much” in U.S. dollars. After all, if you can’t run out of U.S. dollars, you can always pay back what you borrow in U.S. dollars.

Thus, the national debt can never become “too big.”

Period. Ever.

Thankfully, American politics seems exhausted with the whole topic of the national debt these days. You hear little talk of fiscal discipline or the need for “belt tightening,” God forbid. But various pundits are still trying to convince the politicians to return to the old-time debt-fearing religion. So I figured I’d nail down my own version of this argument, hopefully in a way that’s as accessible as possible. ( I called this newsletter “The Workbench,” after all.)

For instance, this piece by Dylan Matthews at Vox is a useful presentation of orthodox economic concerns with the size of the national debt. And it suffers from orthodox economics’ common confusions. First and foremost: Matthews can’t decide what exactly will happen if the national debt does become “too big.” Will private markets just stop lending to the U.S. government? (The dreaded “bond vigilantes” scenario.) Or will all that borrowing by the government drive up interest rates for everyone, choking off investment and economic growth? (The dreaded “crowding out” scenario.) Or will the national debt eventually lead to hyperinflation?

I’ll tackle each supposed threat, and why it’s not actually a threat, in a separate newsletter. Today it’s the bond vigilantes—why the U.S. national debt will never become so large that private markets simply cease lending to the U.S. government.

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The Government Play-Acts Like It Can Run Out Of Dollars

Congress passes the laws that determine how much the federal government will tax and spend, and then the U.S. Treasury Department carries those laws out. It brings in tax revenue from the Internal Revenue Service, and it disperses payments in accordance with Congress’ spending decisions. When there’s more spending than tax revenue, the Treasury Department faces a budget deficit. And the law says those deficits must be covered by borrowing. So the Treasury Department sells bonds to the private markets.

“The law requires” is a key phrase there. The U.S. government is the legal issuer of all U.S. dollars; it says so right there in the Constitution. It doesn’t need to borrow dollars to finance its deficits, the way you or I or any private household or business do. It could just create them. Nonetheless, laws passed by Congress require the Treasury Department to play-act as if the federal government can run out of dollars. Selling Treasury bonds when the federal government deficits spends does come with certain practical advantages, which we can save for later. But none of these advantages include actually providing the dollars with which the U.S. government spends.

That brings us to the U.S. Federal Reserve—the United States’ central bank, created in 1913.

The Fed serves several purposes at once: It is the creation point for all electronic U.S. dollars. (Physical cash and coin are created by the U.S. Mint, housed at the Treasury Department.) It also operates as a “bank for the banks.” Every major bank in the country maintains an account at the Fed, where they store their reserves of U.S. dollars. The U.S. Treasury Department has an account at the central bank as well, making the Fed the connection point between the Treasury Department and the rest of the U.S. banking system. After all, when the federal government pays a contractor or sends someone their Social Security benefits, it doesn’t print up a stack of physical U.S. dollars and mail it—it just pays them electronically, via their bank account.

Finally, as a “bank for the banks,” the Fed is also the “lender of last resort.” It stands ready to loan U.S. dollars to banks in an emergency, which helps keep our financial system stable and functional.

Here again, this setup is designed to play-act as if the federal government can run out of U.S. dollars. The Fed play-acts like it’s just another for-profit bank seeking to maximize revenue. And The Fed and the Treasury Department play-act like they’re separate economic actors, and that the Fed is a “bank” for the U.S. government the same way an actual bank is for you or I.

But none of that is true.

The Fed is not a for-profit entity seeking to maximize revenue; it could just create U.S. dollars and give them away. But policymakers want to impose at least some facsimile of market discipline on the banks. So the Fed loans the dollars.1 Nor will the U.S. Federal Reserve ever stop banking for the U.S. Treasury Department or “allow its checks to bounce.” The two are both agencies of the same federal government! That’s why their names both begin with “U.S.”2

In fact, while the Fed brings in revenue from all the financial assets it owns, all the “profits” it makes over and above its operating expenses are remitted right back to the Treasury Department as federal revenue. The two agencies form a closed loop.

The Federal Reserve Decides

The Fed’s other key role, of course, is running monetary policy—setting interest rates in the overall economy. Which it does by adjusting the total amount of U.S. dollars in the reserves of the country’s banks.

The banks themselves can trade U.S. dollars back and forth, and in fact they loan dollars to one another all the time. But they do that because, unlike the Fed, they can run out of dollars. They cannot increase or decrease the total amount of U.S. dollars in the banks’ reserve system. Only the U.S. Federal Reserve can do that.

How the amount of U.S. dollars in the reserve system affects interest rates is a basic supply and demand story: As the amount of dollars in the reserve system increases, the “cost” of making loans decreases—monetary policy becomes “looser,” and banks become more willing to lend money at lower interest rates to you and me and everyone else in the private economy. Vice versa, as the amount of dollars in the banks’ reserve system goes down, monetary policy becomes “tighter,” and the banks become stingier with their loans and insist on lending at higher interest rates.3

As mentioned, one way the Fed adds to the reserve system is by lending dollars to the banks. But loans eventually have to be paid back. So the Fed also conducts “open market operations,” in which it buys (or sells) U.S. treasury bonds from (or to) the banks. When it does so, it adds U.S. dollars to the reserve system (by buying the bonds) or sucks them out (by selling them).

This is the key place where the Fed’s creation of U.S. dollars happens. Since the law requires the U.S. Treasury Department to borrow to cover it’s deficits, the Fed is not creating U.S. dollars on behalf of Treasury Department, in that sense. But when the Fed buys financial assets from the banks or grants them loans, it’s creating the dollars out of thin air.4

The upshot of all this is the Fed has total power over how many U.S. dollars are in the banks’ reserve system. Which means the Fed has total power over our economy’s interest rate environment. “Market forces” play a role here only to the degree the Fed allows them to play a role.

This also gives the Fed enormous—not total, but enormous—power over how unemployment, economic growth and inflation play out. When the Fed lowers interest rates, credit creation and spending in the economy speed up, businesses invest, people get hired, wages rise, and the economy grows faster. But inflationary pressures also rises. By contrast, when the Fed raises interest rates, it eases inflationary pressure, but at the cost of slowing economic growth, job creation and wages.

The Fed cannot avoid navigating this trade-off. The fact that it is the creation point for U.S. dollars, combined with its Congressionally-mandated mission to stabilize the financial system, means it must choose how many dollars are in the reserve system. It must set monetary policy somewhere. It can’t “decide not to decide.” Which is why Congress gave the central bank the dual mandate, obligating it to set interest rates in a way that balances maximum employment against stable prices.

Why U.S. Debt Will Always Have Buyers

Now that we’ve done our quick tour of the public finance system, we can return to the subject at hand: Why the U.S. government will never run out of people to buy U.S. Treasury bonds and thus lend it dollars.

The first key thing to realize is something I already noted: when the U.S. Federal Reserve conducts open market operations to adjusts interest rates, it’s buying U.S. Treasury bonds. It does sometimes buy other financial assets like corporate bonds, corporate stocks, or mortgages. But that’s considered pretty unorthodox and outré; a manipulation of the economy the Fed should generally avoid.

Furthermore, it’s illegal for the Fed to buy bonds directly from the U.S. Treasury Department. First, the Treasury Department must sell its bonds to the private market in regular auctions. And only then can the Fed buy the Treasury bonds from those private buyers.

Put these two facts together, and you realize the Federal Reserve is also the “buyer of last resort” for U.S. Treasury bonds. Which is just another way of saying the U.S. government, with its endless supply of U.S. dollars, is the “buyer of last resort” for its own debt. If the Fed and the Treasury are a closed financial loop, the private markets are just the middle man in between them.

The mistake that Dylan Matthews and others make is they fall for the government’s play-acting. They see the Treasury Department borrow, they see it pay interest, they see it borrow to pay interest, and they see it pay interest on the borrowing it did to pay interest, and they think “Oh my God this can’t last.”

But the reason lenders cut off private households and businesses from further borrowing is because private households and businesses can run out of money, which makes lending to them a losing investment. If a private business borrows buy selling bonds, their riskiness makes the bond worthless: No one wants to buy the bond because they’ll never get paid back, but also because no else wants to buy the bond either. Half the reason to own a bond is that it’s a form of savings, which you can cash out at a moment’s notice. Economists call that quality liquidity—how easily a financial asset can be sold for cash at a moment’s notice, and how much cash they can be sold for.

Matthews and others see buyers at a Treasury bond auction demanding slightly higher interest rates than usual, and assume that trend could continue ever upwards, until buyers just refuse to purchase U.S. Treasury bonds entirely. What they do not see is the Fed’s purchase of U.S. Treasury bonds sitting behind private investors’ purchases of U.S. Treasury bonds. Which means there will always be someone else to buy Treasury bonds from the private market. Thus, private markets will always have a reason to buy those bonds as well.

Under our monetary system, interest rates on U.S. Treasury bonds cannot be disentangled from interest rates in the economy as a whole. And as we’ve already established—and I don’t think anyone would dispute—the Fed is in command of interest rates in the economy as a whole. Granted, the Fed is not committed to buying Treasury bonds ad infinitum. But it is committed to buying however many are needed to keep interest rates in the happy medium between maximum employment and stable inflation. The size of the federal debt simply doesn’t enter into the calculus.

So the interest rates the U.S. government pays on its debt will never diverge too far from the overall interest rate environment. Sometimes the government’s interest rates will go higher or lower, as the economy ebbs and flows. But they will always remain within a certain envelope. Investors will never reach the point where they simply stop buying U.S. Treasury bonds, and they will never charge an interest rate too much higher than the interest rate the Fed has set.

Private Investors Are Not Complicated Creatures

It is a well-known fact that U.S. Treasury bonds are the global gold-standard for safe and low-risk investment.5 The facts we have just laid out are why. And this is true for any country that has the same monetary system we do. The U.S. government will never run out of U.S. dollars, just like the Afghanistan government will never run out of Afghanis.

Of course, no one wants to buy bonds denominated in Afghanis, because Afghanistan’s economy is a basket case.6 It has few profitable opportunities for investment denominated in Afghanis. But that affects the desirability of investing in Afghanis—not the chances that you’ll get your Afghanis back.

The United States, on the other hand, is productive and prosperous, which makes it very attractive to invest in U.S. dollars. And the next most valuable low-risk investments, after U.S. Treasury bonds, are the bonds of other rich and prosperous countries with the same monetary system as us: Britian, Canada, Japan, and so on.

For people to stop wanting to invest in U.S. Treasury bonds, the United States would have to first cease to be a rich and prosperous country. Barring a nuclear war or a zombie apocalypse—or a Trump dictatorship that features Hugo-Chavez-esque levels of economic mismanagement—that ain’t happening.

I suppose you could argue that private investors might mistakenly abandon U.S. Treasury bonds. They could look at the size of the U.S.national debt and wrongly conclude it’s a problem, they same way most people wrongly conclude it’s a problem. But the whole point of for-profit financial markets is that mistakes are punished.

Consider the case of Japan. As mentioned, Japan is a rich and prosperous country, and it has the same monetary system that we do, complete with a central bank and control of its currency. Japan also has an astronomical national debt load— well more than double that of the United States, relative to the size of its economy.

Wall Street players have repeatedly shorted Japanese debt, expecting that any day now, the borrowing will all become too much, and interest rates on Japanese bonds will go through the roof. Yet it never happens. Shorting Japanese debt is one of the most famous “widowmaker trades” in finance, because of how many people it’s bankrupted.

Or perhaps we’re worried that the Fed would deliberately stop buying U.S. Treasury bonds, and only buy other assets to conduct monetary policy, in some fit of rightwing ideological pique? That would be a remarkable defiance of established norms for monetary policy, and of Fed officials’ duties as public servants appointed by democratically elected representatives. It would also probably be illegal. And it would set off a firestorm in Congress.

But more to the point, there would no possible economic justification: For an institution that can create all the dollars it wants, there is no such thing as a “risky investment.”

In other words, if the Fed did that, it wouldn’t be because the Fed is boxed in by market forces the way a private for-profit bank is. The Fed is a political and policy actor, not a market actor. If the Fed were ever to defy the duties given to it by Congress—or even if it just failed to perform those duties well, and inadvertently hurt the U.S. economy—that wouldn’t be an economic problem, but a political one. And political problems require political solutions.

In short, as long as the Fed does the job Congress gave it, and does it reasonably well, it’s hard to imagine anything short of nuclear war or a zombie apocalypse—or a Trump dictatorship—destroying the value of U.S. Treasury bonds.

Your Examples Do Not Show What You Think

One last point. As historical evidence, Matthews cites instances where private markets did simply refuse to continue buying a county’s debt: “Mexico in 1982, Russia in 1998, Argentina in 2001, Greece in 2015. Near-misses that didn’t quite lead to default, like Spain and Italy in the 2010s or Indonesia, Thailand, and South Korea in 1997, are even more common.”

But Mexico in 1982 had been borrowing U.S. dollars, not Mexican pesos. And the Mexican government obviously cannot create all the U.S. dollars it wants. Those it can run out of. The same holds for the rest of Matthews’ list. Russia in 1998 had been borrowing in U.S. dollars and in euros. Argentina in 2001? Also U.S. dollars. Indonesia, Thailand and South Korea in 1997? You guessed it: U.S. dollars.

Greece in 2015 and Spain and Italy in the 2010s were borrowing in euros. And the eurozone is an interesting case: It’s a bunch of countries that all had the fiscal and monetary privileges that came with controlling their own currencies, and then they voluntarily gave those privileges up to join the eurozone.

The monetary policy of the eurozone is controlled by the European Central Bank, but there is no equivalent Europe-wide fiscal policy to counterbalance it. The European Union has a government, of sorts, but it doesn’t really tax or spend much to speak of. So the countries of the eurozone voluntarily transformed themselves into the equivalents of private households and businesses that can run out of the currency in which they operate. (Needles to say, I think the euro currency union was a terrible fucking idea.)

In short, Matthews’ list makes the key mistake I highlighted in my post on reserve currencies:

One of the most important distinctions in international economics is how much debt a country owes in its own currency versus foreign currencies; i.e. how much it’s borrowed in a currency that it controls versus a currency it doesn’t. Yet most analysts just mash the two types of debt together into a single category. Which is absolutely fucking maddening.

Yet I’m not picking on Matthews’ piece because it’s an outlier. I feel kinda bad for beating up on him so much. It’s just that, like I said, he expressed the orthodox economic wisdom on this stuff really well. And it is with the orthodox economic wisdom that the problem lies.

What does it mean that the U.S. dollar is the world’s reserve currency? Do we even want it to be the world’s reserve currency?

Countries like China, India and Brazil might not. They’ve made noises about—or even taken the first incremental steps towards—getting off the U.S. dollar as their reserve currency of choice. Donald Trump feels differently: “Many countries are leaving the dollar,” he said at a recent rally. “They are not going to leave the dollar with me. I’ll say, you leave the dollar, you’re not doing business with the United States because we’re going to put a 100% tariff on your goods.”

I’ll let others discuss the merits—or demerits—of Trump’s specific proposal. I want to focus on the top two questions. Because everyone seems very confused on this topic.

For instance, my guess is Trump is just vaguely aware that important people say being the world’s premiere reserve currency is beneficial to United States. So losing that status would be bad. And Trump wants to be America’s strongman savior. Yet Trump’s own running mate, J.D. Vance, actually thinks it’s self-destructive to be the world’s dominant reserve currency.

So let’s try to sort things out.

What IS a Reserve Currency, Exactly?

A huge portion of international trade is done in U.S. dollars. If Mexico wants to buy oil from Venezuela, or Britain wants to buy cars from Japan, they won’t just do the deal in their own currencies. They’ll use the U.S. dollar as an intermediary. “Over the period 1999-2019, the dollar accounted for 96 percent of trade invoicing in the Americas, 74 percent in the Asia-Pacific region, and 79 percent in the rest of the world,” according to the U.S. Federal Reserve. “The only exception is Europe, where the euro is dominant with 66 percent.”

To put my “Annoying MMT Guy” hat on for a minute, every country’s government can create as much of its own currency as it wants; Mexico can never run out of Mexican pesos, Britain can never run out of British pounds, and so on. But for any given country, every other country’s currency is a scarce resource. For every country other than the United States, U.S. dollars are something they can run out of.

Thus, most countries find it useful to build up stockpiles of U.S. dollars—also known as reserves—for a rainy day. You never know when you might have an emergency, be in need of critical imports, and not be able to immediately sell the exports to afford them. As of 2022, approximately 58 percent of all foreign exchange reserves were U.S. dollars.1 The euro was a distant second at 20 percent.

Hence, the U.S. dollar is the world’s reserve currency. Really, there are lots of different reserve currencies. But the United States’ is the overwhelmingly dominant one.

How did our currency wind up in this position?

At a practical level, it’s just very useful to have a single stable currency for international transactions. Otherwise, whenever Britain bought cars from Japan, Japanese carmakers would get a bunch of British pounds. But the only thing those pounds would be good for is buying stuff from Britain. Or the Japanese carmakers could trade those British pounds for Japanese yen or whatever other currency they needed for their next transaction.

Scale this logic up to a complex global level, with trade between lots of countries at once, and you can see how it would become horribly cumbersome very fast. Everyone agreeing on a common currency to use for international trade just makes things much more straightforward. If you sell exports in that currency, you can then use it to buy imports from anyone.

For a long time, that common currency was gold. Then it was the British pound. After World War II, economist John Maynard Keynes proposed creating a global currency specifically intended for international trade. But the Bretton Woods system was established instead, making the U.S. dollar the common currency for international trade. Bretton Woods officially ended in 1973, but by then the path dependency was set. And here we are.

The (Limited) Upsides of Providing the World’s Reserve Currency

The practical upshot of all this is that the U.S. doesn’t have to stockpile other currencies to engage in international trade. If we want to buy imports, we just pay with our own currency. And since our government can create an infinite supply of our own currency, we can never run out of it. Awesome! (Annoying MMT Guy strikes again.)

The United States does keep some foreign currency reserves on hand, but they’re minuscule: Measured in U.S. dollars, they’re about $12 billion in euros and $6.6 billion in Japanese yen—0.05 percent and 0.03 percent of our GDP, respectively—because we really don’t need them, except for marginal stuff. By contrast, China’s foreign exchange reserves are a little over $3 trillion in U.S. dollars, which is almost 17 percent of its GDP.

You may have heard that providing the world’s premiere reserve currency makes it easier for the U.S. government to borrow at low rates. Some people think that’s good (cheaper credit for us) while others think it’s bad (we’ll be tempted into borrowing too much). But in truth, it’s neither. Because that claim rests on a deeply confused and incoherent picture of how public and international finance works.

It’s true that foreign countries and businesses stockpile U.S. dollars by investing in financial assets denominated in U.S. dollars, just like you or I do in our savings portfolio. And a lot of the time, they’re buying up U.S. Treasury bonds. In effect, other countries stockpile their U.S. dollar reserves by lending those dollars back to the U.S. government.

But we don’t actually need countries to lend the federal government U.S. dollars. Because the federal government can create all the U.S. dollars it wants! (I know, I know, Annoying MMT Guy just won’t go away.) There are some practical uses to the U.S. government issuing bonds when it deficit spends. But none of them include getting its hands on U.S. dollars it otherwise wouldn’t have.

You often hear people worry about China selling off all the U.S. debt it’s holding to drive up our interest rates and fuck with our economy. But if it did that, then the Fed—an agency of the U.S. government—would just print up a bunch of U.S. dollars and buy those bonds, until it brought interest rates back down to where it wanted them to be. Other countries buying U.S. Treasury bonds is about as harmless an exchange as it gets.2

So no, providing the world’s reserve currency does not make it easier for the U.S. government to borrow in its own currency. Nor does it make it easier to borrow in foreign currencies; it makes it so we don’t need to borrow foreign currencies to begin with. So we run no risk of getting into a foreign currency debt crisis. That’s it.

How International Debt Crises Actually Work

For every country that isn’t the United States, a foreign currency debt crisis is at least a feasible possibility. (How likely a possibility depends on the country—a point we’ll return to shortly.) The obvious way for countries to get their hands on U.S. dollars is to sell exports. And the way to build up a surplus stockpile of U.S. dollars is to run a trade surplus in that currency; sell more in exports than you buy in imports.

This requires producing stuff the rest of the world wants to buy, and producing enough for your own domestic needs that you’re not too reliant on imports. For a lot of developing countries, that can be tough. They often wind up really needing key imports because their domestic industries are still building up and diversifying. Yet for that same reason, they struggle to sell enough exports to afford the imports they need.

That conundrum leads to countries borrowing U.S. dollars to maintain their reserves. But those loans eventually have to be paid back—and they have to be paid back in a currency the country can run out of. When you hear that a country like Mexico or Argentina is in a debt crisis, what happened is it borrowed too much in a currency other than its own. And 99 times out of 100, it’s borrowed too many U.S. dollars. Which is when organizations like the International Monetary Fund have to step in with emergency loans—but only on the condition that the country go through brutal austerity.

One of the most important distinctions in international economics is how much debt a country owes in its own currency versus foreign currencies; i.e. how much it’s borrowed in a currency that it controls versus a currency it doesn’t. Yet most analysts just mash the two types of debt together into a single category. Which is absolutely fucking maddening.

If America were a developing country, providing the world’s reserve currency would be a huge benefit. We’d have a limitless supply of the currency we needed to buy imports, unrestrained by how many exports we could sell or how much foreign currency we could borrow.

But we’re not a developing country; we’re a rich, diversified, prosperous and advanced one.

If You CAN Provide the World’s Reserve Currency, You Probably Don’t NEED To

The United States has exported more food than we import almost nonstop for decades.3 We’ve never imported more than a third of our energy. We usually import much less, and in the last several years we’ve actually been producing more energy than we consume. Besides energy, our other biggest exports are high-value, technologically-involved goods like cars, helicopters, gas turbines, integrated circuits, and medical instruments.

Imports are just 15.4 percent of our economy overall. And for all the genuine damage our trade deficit does to our social fabric, it’s just three percent of our economic output. The worst it got in the last few decades was six percent. That’s all we would lose if the rest of the world suddenly went away and we had to consume our own exports while doing without imports.

Being a rich and productive country with lots of diversified sectors and industries, there’s not really anything that we can’t make here if we put our minds to it. When we are dangerously reliant on imports for key resources—microchips come to mind—it’s because of stupid policy choices that serve rich capitalists at everyone else’s expense. It’s not because of any intrinsic inability to stand up the supply chains on our own soil.

Our prosperity also means our economy provides lots of opportunities and incentives for people to invest. And since the only currency you can use to invest in the U.S. economy is U.S. dollars, there’s a lot of demand in the world for U.S. dollars. So even if we weren’t providing a major reserve currency, it would be very easy for us to acquire foreign currencies, because investors on international markets would be eager to give us foreign currencies in exchange for U.S. dollars.

Thus, importing whatever we needed would still be smooth sailing.

Look around the world, and you’ll see this is exactly the situation for other countries—Britain, Australia, Canada, Japan, and so on—that have advanced, diversified economies like ours but that don’t provide a major reserve currency. Because they’re an attractive investment opportunity, they can affordably acquire the foreign currencies they need, so they can afford their imports. And they don’t suffer foreign currency debt crises. To lose that privilege, they’d have to first cease being an advanced, rich, diversified economy.

I’d wager that to become a provider of a major reserve currency in the first place, you must have the kind of economy that doesn’t actually need the benefits of doing so. If you did need those benefits, that would mean your country was heavily dependent on imports; that it was underdeveloped and at risk of instability. In which case, you’d probably never dominate global trade to begin with.

A Reserve Currency as a “Resource Curse”

So the upsides to providing the world’s dominant reserve currency are pretty “meh.” What about the downsides?

J.D. Vance is quite often a dangerous loon. But one thing he’s said that isn’t crazy is that providing the world’s dominant reserve currency is a lot like “resource curse.” (Though I think what he’s referring to in that link is closer to the concept of “Dutch disease.”)

When a country has a valuable natural resource, like oil or gas, it winds up exporting a lot of that resource, because the rest of the world wants it. That drives up the value of the country’s currency, which makes all the country’s other exports more expensive. So the domestic sectors and industries that don’t deal in that one key export sometimes wind up withered and underdeveloped. The country enters a kind of of codependent relationship with the rest of the world: its domestic economy focuses on producing that one export, and then uses the proceeds to import all the other needs it can’t produce for itself.

Of course, the second anything goes wrong with that one key export, the country is screwed.4

Now, the United States isn’t supplying one key export. Instead it’s supplying a key currency. And like I said, the safest way for countries to get surplus U.S. dollars is to run a trade surplus in that currency. But everyone’s trade surplus has to be mirrored by someone else’s trade deficit. And since America is the provider of U.S. dollars to the world, “someone else” usually winds up being us. So we just get trade deficits across the board, and hollowed-out industrial bases in sectors that tend to do a lot of exporting, like manufacturing.

While providing the world’s dominant reserve currency isn’t the sole reason the United States runs persistent trade deficits, it’s definitely a major factor. Which makes it highly amusing that Trump wants to browbeat other countries into retaining the U.S. dollar as their reserve currency, since he also hates the trade deficit.

A Problem We Can Live With (But Others Maybe Can’t)

But Trump’s stupidity aside, trade deficits come with real downsides. And the orthodox economics profession is far too blasé about those downsides. At the same time, those problem can be counteracted without upending the global economy. Using smart policy, we can live with a trade deficit indefinitely without suffering the ill side-effects. (More on that in a future post.)

The trouble is that we have not been smart; we’ve just let the trade deficit problem fester. And since nature abhors a vacuum, Donald Trump gets to steps in with the extremely clunky idea of a 10 percent tariff on all imports.

But for our purposes here, the point is that the benefits to the United States of providing the world’s dominant reserve currency are marginal to the point of uselessness. And the downsides, while totally manageable, are real. Just focusing on our own self-interest, this seems like a deal that’s somewhere between “meh” and “moderately bad.”

But you know who really gets screwed by the U.S. dollar being the world’s reserve currency? It’s not Americans. It’s the rest of the world.

Particularly developing countries.

They’re the one’s whose economies get stuck focusing on low-pay manufacturing to produce enough exports to bring in surplus dollars. And they’re the ones whose governments risk borrowing too many U.S. dollars, thus winding up in a foreign currency debt crisis. On top of all that, whenever the United States hikes its interest rates for purely domestic reasons—to deal with our recent bout of inflation, for example—that also screws other countries: Suddenly, through no fault of their own, U.S. dollars become harder to borrow, and the borrowing harder to pay back. Which makes a debt crisis even more likely.

The best solution to all this would be to resurrect Keynes’ old notion of a new currency designed specifically for international trade. We also need a complete revamp of global trade rules and norms, to help developing countries build up their own prosperity and resiliency again, rather than relying on advanced imports in exchange for operating as the sweatshops for well-off western consumers.

But in the meantime, the U.S. should try to manage the world’s reserve currency as humanely as possible. That means not being afraid to run plenty of budget deficits: That will counteract the drain on demand from our trade deficit, and keep our own economy at full employment. At the same time, it will provide the rest of the world an abundant supply of U.S. Treasury bonds to stockpile dollars in. More radically, we should also think about relying on tools other than interest rates to control inflation.

Lots more detail on all those points in future posts.

Here’s a question that’s bedeviling the commentariat: Why aren’t Americans giving Biden and the Democrats credit for a great economy?

Unemployment is currently 3.5 percent, which is as low as it ever got during Donald Trump’s presidency—and lower than it’s been since the late 1960s. The prime-age employment rate is now a little higher than it ever was under Trump, and well on its way to reaching an all-time high. Inflation has slowed considerably. Economic growth is still bouncing along at a respectable clip, defying widespread expectations of a recession.

Yet, when voters are asked to rank Biden on the economy specifically, his numbers are in the tank. A mere 32 percent approve of the job he’s doing, while 67 percent disapprove. Trump’s approval rating, when the economy was showing very similar headline numbers, was almost twice as high. A recent New York Times poll found that if Biden and Trump had a rematch tomorrow, they’d be in a dead tie. And the Democratic Party is panicking that they’ve lost voters on the economy.

Some leftwing critics point to the long-term problems of American capitalism to explain Biden’s conundrum: low unemployment or not, poverty and inequality remain widespread, and we still fail to make crucial needs like health care, education, and housing universal and affordable. All of which is true! But that’s why the comparison to Trump is helpful: all those long-term failures were present during his administration too. Yet they didn’t drag his numbers down.

So what gives?

One conclusion is that voters are detached from reality—whether because of cognitive biases built into human nature, reporting failures by the mainstream media, or the hypnotic power of rightwing propaganda outlets. There’s a very similar story progressives often tell about Republican voters specifically: that they’re completely indifferent to any material difference Democrats may make in their lives. The new version just extends the exasperation to the entire voting populace.

I find neither particularly compelling. Both sentiments tend to betray a self-satisfied elitism, not to mention a vague contempt for democracy’s very ability to function.

Generally speaking, if your data is saying the economy is good, and voters are telling you it’s not, you should assume your data is missing something. More specifically, if you want to understand how politicians—and in particular presidents and their parties—get credit for good economic outcomes, I’d say you need to look at two questions.

The first is, have there been specific policies or actions taken that earn voters’ goodwill? Think of Franklin Roosevelt passing Social Security or a bunch of New Deal jobs programs. Those policies made big, immediate, lasting differences in people’s lives, and voters remembered that Roosevelt and the Democrats did that.

The second question is good management of the macroeconomy. This is more of a general environmental condition that voters feel good about, rather than a  specific act for which credit is given. Nonetheless, it’s usually the case that good economic conditions result in rising approval for the person (and party) that occupies the White House.

I think the basic story here is that Democrats blew it on the first question. But they did do pretty well on the second question. It’s just their success hasn’t become tangible to most voters yet, for reasons that are actually fairly mundane and obvious once you poke around under the hood. However, with a little luck, that should turn around before 2024.

Helping Americans Isn’t Enough; They Have to See You Do It

A branch of political science I think everyone should read—elected representatives especially—is the literature on “policy feedback.” In a nutshell, voters not only affect policy, but policy affects voters. The right government program can turn a random assortment of individuals into a coherent block of voters, with shared goals and a shared identity, and a shared incentive to reward the politicians and party that helped them.

Social Security is the quintessential example here. It didn’t happen because seniors organized and demanded it; President Roosevelt and the Democrats passed it for a host of other historical reasons. Instead, seniors organized into a powerful voting block in response to Social Security’s existence and the benefits it provided. And then seniors’ engagement and loyalty could be harnessed to power other political goals.

The policy feedback literature deals with, well, that feedback loop. Most importantly, it identifies several specific characteristics a policy needs to generate that voter feedback. Not just any policy will do the trick. There are plenty of policies that are good ideas, that make the economy better, that produce real material benefits for voters, but not in the specific ways voters can recognize and respond to.

President Biden and the Democrats have passed a lot of stuff. And I suspect a lot of people look at all that and think, “Holy shit, look at all the economic aid Biden has given voters! It’s absolutely crazy that his job approval on the economy is so low!” But if you look at the policy characteristics that best generate feedback from voters, it’s very obvious that the stuff Biden passed rarely matched the criteria:

Visibility and traceability of benefits. For a policy to create feedback, voters need to be able to easily see the aid they’re getting, and be able to see where it came from. Social Security benefits and the direct checks in the COVID-19 aid packages are examples of this done well.1 Tax credits, on the other hand, are a great example of this done poorly: they’re administered through the tax code, which is complex and opaque and a hassle. Indeed, tax credits are infamous for how often Americans fail to realize they’re benefiting from them. Outside of the direct checks, a lot of the aid in Biden’s American Rescue Plan was expansions of existing tax credits. As for the Inflation Reduction Act, it’s also mostly tax credits to households and businesses, and most of its spending hasn’t even gone out the door yet.

The proximity and concentration of beneficiaries. Programs that benefit a large number of people, who can recognize each other as a group with shared interests, are more likely to generate feedback. Thus, universal programs are much better than means-tested and targeted programs, as the latter benefit smaller populations that are more scattered and diffuse. There’s a reason Biden’s direct COVID-19 checks, which came close to being universal, were such a big focus of Democrats’ campaigning. But expanding the generosity of targeted programs like SNAP, TANF, and even unemployment insurance—all big parts of the American Rescue Plan—won’t get you nearly as much juice in terms of political credit.

Duration of benefits. This should be fairly obvious, but programs that last a long time are much more likely to generate feedback than programs that are short. This was a big downfall of the entire American Rescue Plan: the direct checks only happened once, and pretty much every other form of aid in the COVID-era programs has already expired.

How the program is administered. The experience of interacting with a policy can send a very clear signal to Americans about whether or not they’re valued. Social Security is experienced as a right and an entitlement—a clear sign that you’re a valued member of the national community, and we care about you. People will be grateful for that and respond accordingly. But if you’ve ever been on SNAP or TANF or unemployment insurance, to name a few, the experience is very different. Those programs are basically designed to make their beneficiaries feel guilty for receiving them. You’re required to constantly jump through tons of hoops to prove you’re “worthy.”

Many Americans barely remember the aid from the American Rescue Plan, nor are they aware of the genuinely big moves the Inflation Reduction Act made toward combating climate change. But this shouldn’t surprise anyone. It wasn’t a failure of messaging, and it wasn’t because people are addled by culture-war folderol. Those bills simply weren’t designed to encourage the policy feedback loop.

Assuming Democrats ever get another bite at the apple, that’s the lesson I’d love for them to take away. Voter goodwill doesn’t arise automatically; there’s a science to husbanding it. Obviously, not every bill can or should make policy feedback its top priority. Biden’s bills have included genuinely great and worthwhile stuff! But if you want to get re-elected and keep passing great and worthwhile stuff, you have to keep your eye on that particular ball.

Inflation Only Just Stopped Wrecking Americans’ Purchasing Power

So Biden and the Democrats didn’t do a good job cultivating policy feedback. But they’ve clearly done a good job shepherding the economy overall. And good economic times usually translate into approval for the president’s party. Why not this time?

Here, I’m going to repeat some points already made by folks like David Dayen. But I think the differences between Trump’s situation and Biden’s are fairly obvious, and lie in what happened in the run-up to their respective economies.

Trump had the good fortune to inherit an economy that had been on one steady, upward climb since the Great Recession. Inflation was low, unemployment was falling to levels unseen in decades, and wage growth adjusted for inflation was mostly positive. Despite his numerous and grotesque flaws, Trump did at least manage to not fuck any of that up. Biden, on the other hand, inherited an economy that had just been crushed by a global pandemic. We had a massive collapse in, and then a reshuffling of, the labor supply; we had a massive shift in demand from services to goods; global supply chains were shut down, supercharged, snarled, and thrown into chaos.

The federal government spent a massive amount on COVID-19 aid packages. Plenty of centrist, mainstream economists scolded the Democrats for their part of that spending, asserting it was overkill. But the end result was a borderline-miraculous rebound from the recession induced by the pandemic. As you can see in the graph below, the post-2020 jobs recovery (the red line) happened faster than any recession since 1981 (the lines in shades of blue). And while recoveries between 1945 and 1981 (the grey lines) happened faster, they never started from a jobs hole anywhere near as deep.

If this is Bidenomics, then in a just world, everyone would agree it’s a successful model to build upon. But we also got two years of the highest inflation we’ve seen in decades. Prices only just recently returned to a growth rate that’s sort of close to normal. So Bidenomics’ critics did a victory lap. 

Long story short, the several years that preceded Biden’s current very good economic moment were a complete fucking mess, in ways not at all comparable to Trump’s economy. And that mess left us with a lot of damage that we’re still unwinding.

There are various ways to encapsulate or illustrate that reality with data. But I think the most straightforward is to look at the rate of real wage growth starting under Trump. (In other words, how fast have wages grown—or shrunk—once you account for inflation.)

As you can see, real wage growth each month wasn’t exactly spectacular under Trump. But it was positive a fair portion of the time. (It stayed above the dotted line.) And it never really turned negative.

Then, under Biden, everything went crazy. First, there was a big dramatic spike of positive real wage growth, followed by a negative spike. These were largely statistical artifacts: a whole lot of workers, disproportionately low-wage, left the economy and then re-entered it, causing the measured average of Americans’ wages to first jump and then drop. But by the latter half of 2021, this process had played itself out. What followed was a roughly two-year stretch where prices rose faster than wages, so people’s buying power in real terms fell. Every month real wage growth was negative, Americans were becoming poorer in terms of the concrete goods and services their incomes could actually buy.

Compared to the last few decades, this was a pretty serious bout of falling real wages, both in terms of how negative they got, and how long they stayed negative. Trump never had to deal with anything like that.

Now, the good news is that inflation has slowed down significantly while wages are still going strong. So real wage growth has turned positive again, as you can see above. But this literally just happened a few months ago. Furthermore, slower inflation doesn’t mean prices are falling, it just means they’re rising less fast. Prices throughout the economy are still really damn high. We’re going to need real wage growth to stay positive for a while before the pain of the recent inflationary bout recedes, and for people to feel like their incomes are ahead of prices the way they were before inflation shot up.

Other Tidbits Distinguishing Biden’s Economy From Trump’s

On top of being too short to generate much policy feedback with voters, the expiration of pandemic-era protections left a lot of Americans without support in an economy that was, in many ways, still recovering from an enormous shock. After falling for at least a decade, the national homelessness rate started ticking back up in 2019 and continued to rise through 2022. Compared to the pre-pandemic average under Trump, evictions are up significantly in pretty much every city and state they’re studied. Measures of food insecurity and financial distress are also higher compared to early 2020, when Trump’s economy was peaking just before COVID-19.

I wouldn’t say these numbers justify wildly broad headlines like “Bidenomics isn’t working for working people.” But they do provide additional, plausible, concrete reasons why Americans would rank Biden’s economic performance worse than Trump’s.

Dayen also points a finger at higher interest rates. I’m a bit more skeptical, because debt burdens as a percentage of household income remain unusually low—a fact we can thank the massive amounts of COVID-19 aid for. And while the Fed’s current interest rate target of roughly five percent ain’t nothing, it’s also not that high, historically speaking.

On the other hand, the Federal Reserve’s interest rate target has been at zero for most of the last 13 years. If particular economic conditions last long enough, Americans tend to adjust their expectations to fit the new baseline. A five-percent target for interest rates probably feels a lot more painful today than it did, say, back in the late 1990s. And this latest increase also happened fast. So I wouldn’t rule out interest rates as a reason for Americans’ grumpy mood, either.

Finally, to complicate things a bit further, there’s an interesting debate going on about how exactly to understand the real wage growth numbers.

Some progressives have actually been quite excited. They point out that real wage growth for the poorest third of Americans basically stayed positive roughly the whole time. The combination of pandemic labor market disruption and full employment due to government spending actually drove wage growth for low-income workers way up, and well ahead of inflation. Yet this also makes Biden’s poor polling results on the economy somewhat odd. (I think a possible answer could be that polling tends to oversample upper-class Americans, whose real incomes got hit much harder according to this analysis.)

But another argument emphasizes that incomes for low-income Americans are, well, low. And they typically spend more than they earn, with the difference made up by borrowing and government aid. So even if poorer Americans saw a big percentage gain in their wages, and a smaller percentage increase in their costs, they could still have been left worse off in dollar terms. A big percentage change in a smaller baseline number (income) can still come in behind a smaller percentage change in a bigger baseline number (costs). If you buy this take, then Biden’s poor polling results make a lot more straightforward sense.

Given that we’re talking about how to slice multiple different datasets, it’s a difficult debate to square. And I don’t have the room to referee it here.

I’m also not sure it matters for our purposes. Regardless of who’s right, we wind up in the same place: we need inflation to come down (which is happening) while we need wage growth to stay high (which is also happening). The question is simply how hard inflation hit different economic classes of Americans, and how long real wage growth needs to stay positive to repair the damage.

Biden and the Democrats Picked the Right Risk

Given how much damage inflation did to Biden and the Democrats’ political prospects, it’s worth asking: Could they have avoided inflation while still engineering a recovery as fast and comprehensive as the one we got?

In theory, I think, yes. But first, you’d have to answer the question of whether inflation was primarily caused by government spending, or primarily driven by the massive disruption that COVID-19 delivered to global supply chains. I think the weight of evidence favors the supply-side story. In which case there wasn’t much to be done except help Americans as much as we could, while we all gritted our teeth and got through the price spike. But even if you do think government spending played a much bigger role, I doubt we could’ve kept the job recovery and avoided inflation by simply spending a bit less or spending differently.

Fundamentally, I just don’t think we have good tools for dealing with inflation. There’s a world in which we do, because the ideas behind western macroeconomic policymaking—and, more importantly, the design of the institutions that deploy that macroeconomic policy—evolved in a very different direction after World War II. But that’s another newsletter entirely. We live in the world we live in, with the tools we’ve got. And the lesson Biden and the Democrats took from the Obama years was that the risks of doing too little in a recession vastly outweigh the risks of doing too much.

I think they were clearly correct in that judgment. I’m taken by Alex Williams’ metaphor of the “Dukes of Hazzard landing.” When you’re trying to jump a ravine in a 1969 Dodge Charger, you want to gun the engine both before and after you’re airborne. The last thing you want to do at any point is hit the brakes. There’s no way the landing is ever going to be pretty. But the only way to avoid disaster, and to keep any control of the car at all, is to keep your foot on the gas once you’ve hit the ground.

So while I don’t think there’s any great mystery as to why Biden is currently getting much worse marks on the economy than Trump, I also think the data we’re getting suggests that Democrats more or less pulled off the Dukes of Hazzard landing. 

Certainly, some things could still go wrong. The Fed could decide they really want inflation back down to two percent right now, despite the weakening labor market, and keep increasing interest rates. And Republicans will probably shut the government down again when the next federal budget fight arrives in September. Which could do a little damage to the economy or a lot.

But barring an outside intervention of that sort, there’s no inherent reason why the economy’s current trends shouldn’t continue through November of 2024, or why wage growth wouldn’t remain positive for the vast majority of the country. So the longer real wage growth stays positive, the more the damage and pain left by inflation should recede. And the more Biden and the Democrats’ economic approval should increase.

So fingers crossed that the economy keeps healing. Because if Biden does eventually reap the political benefits of a good economy, he’ll certainly deserve it.

What are banks for, anyway? The bog-standard definition is they accept deposits and make loans.

To grotesquely simplify matters, banks take in money that people want to store, and then loan that money out to other people who need it. Banks attract those deposits by paying depositors an interest rate. And they charge interest to the people they loan money to. Banks then make their profit on the difference between the interest they pay and the interest they take in.

Banks also need to keep enough money in reserve so that anyone who wants to cash out their deposit can do so. Banks never actually have all their depositors’ money on hand, the idea being that only a fraction of depositors will want to cash out at any given moment. So banks are constantly managing a balancing act between money flowing in and money flowing out. Banks that do this well will profit and thrive; banks that do it poorly will fail and go under.

The trouble is that these two seemingly straightforward activities—taking in deposits and making loans—have evolved into two wildly different functions within our economy. And our social and political expectations for those two functions are mutually contradictory.

This is something I’ve wanted to dig into ever since Silicon Valley Bank collapsed back in March, setting off yet another (blessedly momentary, this time) crisis in the U.S. banking system. Even though the system ultimately “worked” in response to the blow-up, it still seemed to leave a thoroughly bad taste in everyone’s mouth. We keep running headlong into this problem without quite recognizing the nature of the wall we just crashed into.

Two Great Tastes That Don’t Taste Great Together

Bank loans provide a big portion of the financial capital that goes into starting up new businesses, or expanding existing ones. This makes bank loans central to the growth of the economy, innovation, the creation of jobs, and rising living standards.

Bank loans also involve necessary and unavoidable risks. Every loan finances some economic endeavor, and every loan is a bet that the endeavor will pay off; that it will result in real wealth creation and real social benefit, thus earning enough returns to pay back the loan plus interest. If a bank fails at those bets often enough, then it goes bust.

More to the point, banks must be allowed to fail and go bust. Bad bets use real resources (workers and materials) that need to be freed up for better bets. And the only way banks can figure out how to make better bets is through the iterative learning process of trial and error. Ultimately, that’s the whole raison d'être of market competition. If banks aren’t allowed to fail—if they’re bailed out and rescued from their follies—then they don’t learn. So there’s a moral objection to bailouts, in that they effectively reward people for foolhardiness and doing a bad job. But there’s also a coldblooded economic argument against bailing out failed banks, in that doing so short-circuits the market’s trial-and-error learning process. Resources will be put to poorer use, growth will slow down, and living standards will stagnate. 

Thus, for bank loans to perform their economic function, we must tolerate the constant presence of both risk and instability—the ever-present churn of Schumpeter’s good ol’ creative destruction. And that reality runs headlong into the second function of banks in our economy: to take in deposits.

The bog-standard definition of a bank makes it sound like depositing your money is a gamble, same as if you were buying stock: you are betting that the bank you deposited with will make good bets. You’re taking responsibility for the possibility that all the money you deposited could go “poof.”

But tell any everyday worker, consumer, or business person that opening a plain-vanilla checking or savings account is equivalent to playing the stock market, and they’ll find the analogy bizarre and perverse. No one thinks they need to assess a bank’s stability, research its portfolio, or consider its reputation, just to open a damn checking account. We deposit our money in checking and savings accounts to avoid the kind of risk involved in playing the stock market.

In the modern context, “taking in deposits” really means “providing a money system.” We deposit money in banks to store it, but we also use our bank accounts to conduct the vast majority of our economic transactions. They’re the plumbing of commerce; the underlying payments infrastructure; the holding tanks and pipes by which we transmit money to one another, and store the money we haven’t used yet. 

When it comes to that function, we do not want to tolerate risk and instability. We want risk and instability to be minimized. If our bank collapses and our deposits vanish, we don’t shrug and chalk it up to the facts of life. And we’d be furious with anyone who suggested we should. That’s not a risk we think we should “internalize.” We think the gambling should be left to actual investments and new business endeavors, and not mixed up with the mundane act of simply moving money around. Much like our actual public city pipes, we want the monetary plumbing that banks provide to just be there, functional and reliable, whenever we need it. 

So, on the one hand, we have loans, for which risk and instability are necessities. On the other hand, we have deposits and the money system, from which risk and instability should be purged. We expect banks to perform both functions while meeting both sets of expectations, and we expect government policy towards banks to honor both sets of expectations.

Needless to say, this is asking for trouble: Every policy attempt to make one function better will make the other function worse. And unless our policy and regulatory designs are exceptionally smart, efforts to split the baby and balance between the two expectations will simply make the banking system more incoherent, contradictory, and dysfunctional.

Stabilizing the Money System Puts the Banks on Easy Street

The fact that today, you really can treat your checking and savings accounts as infrastructure—rather than an investment gamble—is not the “natural” result of market forces. It’s the result of massive and proactive policymaking by the U.S. federal government, which has knit the for-profit, private banking industry into a stable and coherent whole. (Sort of.)

Under the Lincoln administration, we passed a series of National Bank Acts that sought to organize the country’s banks into a unified framework, laid down some regulatory guardrails for banks’ finances, and established a federal chartering system to make sure new banks had sufficient financial resources to succeed. In 1913, we created the Federal Reserve: the country’s central bank, and also the “lender of last resort.” Through a program called the discount window, the Fed loans banks U.S. dollars—in exchange for collateral—to keep them afloat when no one else will.

In 1933, we created the Federal Deposit Insurance Corporation (FDIC), which charges banks a fee to fill an insurance pool, which then guarantees everyone’s deposits up to $250,000. Not only does this protect the vast majority of everyday depositors from losing their money when a bank fails, it also protects the banks from failing in the first place, by discouraging bank runs.1 (Unfortunately for Silicon Valley Bank, it catered to Big Tech venture capital and startups, and thus the vast majority of its deposits were over the $250,000 threshold, leaving it unprotected.) The FDIC also uses that money to take ownership of a failing bank, stabilize its finances, and then sell off its assets to another bank: for depositors, their money stays where it is, and only the brand name on the bank building changes.

But all these policies are also implicit subsidies: they allow banks to take risks in their loan-making that they would not have contemplated otherwise. And they allow the investors and executives who own and operate the banks to walk away with even bigger profits. The price of stability and coherence for the money system is that we dilute the possibility and consequences of failure for bank loans. 

Of course, legislators and regulators are aware of this. So they try to design these policies to “mimic” market forces, and to limit the implicit subsidies.

When the Fed gives banks loans through the discount window, for instance, it does so at interest rates that are less attractive than what banks could get from their fellow private banks under “normal” circumstances. And when the FDIC takes a bank into receivership, all the bank’s shareholders and unsecured creditors lose all the money they had invested in the enterprise. As you might recall, this is precisely what happened to the shareholders and unsecured creditors of Silicon Valley Bank (SVB, henceforth) and Signature Bank, when those two institutions went belly up. Those investors were punished for their folly, in the way “market logic” demands.

Yet at the same time, another bank, First Citizens, was able to buy up much of SVB’s operations and assets from the FDIC—to the benefit of the executives and shareholders at First Citizens—which it likely couldn’t have done had SVB been allowed to collapse the old-fashioned way. And while the FDIC may “only” insure deposits up to $250,000, even that safety net creates a set of circumstances that encourage banks as an aggregate population to take risks they otherwise might not. “In some cases, the risks won’t pay off,” as economist Scott Sumner put it at the time. “But that doesn’t mean executives don’t have an incentive to take excessive risks.”

As for the Federal Reserve, the key thing to realize there is that, while it may lend to banks on comparatively unattractive terms, it isn’t seeking a profit and cannot go bankrupt and collapse in the ways private banks can. Thus, it can keep lending to a troubled bank through the discount window long after private lenders would’ve abandoned it. Despite the harsher interest rates it offers, the fact that the Fed’s discount window exists at all changes the banks’ incentives for risk-taking, compared to what they’d be if the Fed didn’t exist.

When Drawing Arbitrary Lines, You Never Know Where To Draw Them

What was even more striking about the SVB crisis was that federal regulators decided to use their emergency powers to dramatically expand upon this standard safety net. The Federal Reserve, the FDIC, and the Treasury Department announced a joint decision that all deposits at Silicon Valley Bank and Signature Bank would be covered by FDIC insurance—not just deposits under $250,000. So they took the subsidy for the banks that’s already implicit in standard FDIC insurance and scaled it way up.

Meanwhile, the Federal Reserve had already dramatically lowered the interest rate for loans through the standard discount window—in response to the 2020 crisis set off by the COVID pandemic—bringing it almost even with what private banks charge each other. Then, it responded to SVB’s collapse with a whole new lending program, offering U.S. dollars to the banking system on even more attractive terms. Most strikingly, the financial assets the banks put up as collateral for Fed loans would be valued “at par.” Meaning the Fed would value the asset according to what the bank originally paid for it, instead of what the private market would pay for the asset in the here and now.

Put in practical terms, when your bank offers you a credit card, it offers it with terms—interest payments, fees, lending limits, etc—designed to make the bank a profit and protect its bottom line. But imagine your bank offered you a credit card with terms that ignored the bank’s desire for profit completely. Instead, it specifically designed the terms for your sake, to keep you afloat through whatever your financial troubles were. That’s basically what the Fed offered the banks.

These were all big changes to the “rules” mid-game. And while they may not have saved the specific folks in charge of Silicon Valley Bank and Signature Bank, they were a massive financial boon to the ownership class of the banking industry as a whole. In the first four weeks after SVB’s collapse, bank borrowing through the standard discount window jumped from almost nothing to nearly $400 billion. Borrowing from the new lending program totaled around $200 billion.

Furthermore, given that SVB wasn’t even that large a bank in the grand scheme of things, it’s now much more likely that federal regulators will “break the glass in case of emergency” for any moderately-sized bank failure going forward. That would make the $250,000 limit to FDIC insurance, and the more stringent standards of the Fed’s normal lending program, just technical formalities. In practice, the terms of the banking system’s safety net will be much more generous from here on out.

Was all this actually necessary? I honestly have no idea. There’s no Earth 2 where we can run the same scenario, but this time without federal regulators’ massive intervention. 

What I can say is that not knowing where to draw the regulatory line is itself a problem that’s intrinsic to mashing up the banks’ loan-making function with their money-system function. All the cut-offs we’re talking about here—the $250,000 limit on FDIC insurance, the terms offered in the Fed’s standard lending facilities—are arbitrary to begin with. Both the Federal Reserve and the FDIC are ultimately backstopped by the federal government’s power to create U.S. dollars, and neither can ever truly “run out of money” if policymakers don’t want them to. Therefore, the limits on FDIC insurance, and the terms on which the Fed offers to loan money, can be whatever the hell we want them to be. Once we’ve decided to enact policies that bring stability and reassurance into the banking system, there’s no “right” answer as to how far to take them.

The financial regulators at the FDIC, the Federal Reserve, and the Treasury Department are only human. And there are just a lot of unknowns when you’re in the teeth of that sort of crisis, trying to manage it on a moment-to-moment basis.2 So, when faced with the imminent collapse of several “mid-sized” banks that may or may not have been big enough to threaten the entire banking system, I can’t say I blame regulators for deciding to just nuke the entire site from orbit. As the lady said, it’s the only way to be sure.

Give the Finance Capitalists Everything And Ask Nothing in Return

At the time, Nathan Tankus argued that what should disturb us about the SVB episode isn’t so much that regulators made such creative use of their emergency powers. What’s disturbing is all the other times they didn’t do so. For instance, the Fed could’ve similarly used its leeway in emergencies to break norms and save Detroit and Puerto Rico from bankruptcy. Both of those crises resulted in massive cuts to public programs, and enormous damage to the lives of hundreds of thousands—if not millions—of everyday people. But the Fed decided that “the rules” and “market logic” militated against intervening.

Of course, a full-on banking system crisis, set off by SVB’s collapse, would’ve also done enormous damage to the lives of hundreds of thousands—if not millions—of everyday people. But it would also have done massive damage to the wealth and position of a good number of financial elites. And that’s why the Fed stepped in with the emergency-powers nuclear bomb for Silicon Valley Bank's collapse, but not for the people of Detroit and Puerto Rico.

Here’s yet another problem inherent to asking the banks to both provide a money system and make loans: the incoherence and contradictions provide abundant opportunities for exploitation. We will inevitably create policies to stabilize the money system for the sake and well-being of everyday Americans as a whole. But a knock-off consequence of that stabilization is the banks’ ownership class can privatize their gains and socialize their losses. And in an economy as unequal as ours, in which the rich and powerful wield such enormous influence and leverage, they can use that confusion to their advantage. They can tilt the design and implementation of those stabilization policies, seeing to it that norms get broken when it suits them and not broken when it doesn’t. They can make out like bandits when times are good, and leave the rest of us holding the bag whenever they fuck up.

One way to tackle this problem would be to impose excess profits taxes on the banks. Yet another strategy is regulation. The policies we’ve been talking about thus far—the Federal Reserve system, the FDIC, etc—aim to stabilize the banking system as a whole. But the financial regulations created by laws like 2010’s Dodd-Frank Act aim to make individual banks safer and more stable. Dodd-Frank does this by limiting how much banks can borrow relative to their assets, and by requiring banks to keep a certain amount of low-risk assets on hand relative to liabilities. And those individual-level regulations also make banks less profitable, by forcing them to devote more money to financial buffers and less to making more of the loans that make them money.

So while financial elites and the banks’ ownership class are generally fine with things like FDIC insurance and generous lending from the Fed, they really don’t like Dodd-Frank and similar regulations. The latter rules function as a de facto excess profits tax on the banking industry, as Matt Klein put it. The point is partially to ensure stability and coherence in the system. But another point is to prevent the banks and their owners from acquiring too much power and wealth. That strong and overbearing regulations prevent enormous profits is a feature, not a bug.

In the wake of the SVB fiasco, much was also made of the change that Republicans—with the aid of centrist Democrats—made to Dodd-Frank’s regulatory framework in 2018: Originally, the law subjected all banks with assets above $50 billion to much stricter regulatory demands and scrutiny. But the 2018 change lifted the threshold to $250 billion. Silicon Valley Bank was one of many institutions directly lobbying for that change, and of course it had roughly $200 billion in assets when it collapsed.

Admittedly, there’s no guarantee that stricter regulatory oversight would’ve prevented SVB’s implosion. But the episode is still galling, because of the cravenness of SVB’s owners specifically. And because the whole justification for the 2018 change—that banks under $250 billion in assets aren’t really “systemic risks”—was belied by the massive effort regulators took to stabilize the money system in the wake of the bank’s collapse.

Yet even the implicit excess profits tax imposed by Dodd-Frank’s regulations before 2018 was pretty easy-going compared to the New Deal-era regulations banks faced after World War II. Back then, banks were flat-out forbidden from opening branches in more than one state, which put a pretty hard cap on how big they could get. There was a hard separation between retail banking, investment banking, and insurance—an institution could only do business in one of those three areas—which again limited size and revenue. Regulations even controlled the design of loans, dictating who the banks could loan to and what interest rates they could charge.

Policymakers dismantled the New Deal-era rules once American politics took its post-Reagan turn towards small government and free market ideology. And we only began inching our way back after the 2008 financial crisis.

Our political system is happy to stabilize the banks—and the money system they create—when that stabilization comes with implicit subsidies for the banks and their owners. But when those stabilizing policies also limit the banks’ power and profits, our leaders approach them gingerly, embracing them only after the worst sorts of debacles—and then retreating from them as fast as they can once memories start to fade. As Peter Conti-Brown observed, government regulations for banks have come and gone throughout the country’s history. But thus far, FDIC insurance has been forever.

So what do we do about all this? 

I don’t think it’s strictly impossible to have the banks perform both functions—making loans and providing a money system—while also imposing a regulatory framework on them that’s both coherent and sufficiently strong. But I do think it’s a very difficult thing to achieve. It not only requires exceptionally smart policy design, it requires putting some pretty draconian limits on the wealth and power that banks’ owners can amass, because they’re always going to be pushing back at the political system for more freedom and leeway.

Frankly, most of the talk about what to do in response to Silicon Valley Bank’s collapse struck me as pretty unambitious: doing away with the 2018 change to Dodd-Frank, re-inscribing the limits on FDIC insurance and Fed lending, and taking away some for those institutions’ emergency powers. None of which strikes me as nearly enough. If we want to truly make banking boring again, we need a return to something like the old New Deal-era rules. And it will be a very long walk from here to there.

To my mind, what’s more promising is just splitting the two functions off into different institutions. More specifically, separate the money system—checking and savings accounts and payments—from banks taking deposits and making loans. Have the government provide that money system as a public institution, and let people put their money in it for the mundane tasks of saving and making transactions. That way, depositing your money at a bank really would be like playing the stock market. And the only people who would do it would be the ones who wanted to gamble.

I’ll try to dig into all of that in more detail in a future post.

Broadly speaking, the actors’ and writers’ strikes that have ground Hollywood to a halt are about two complaints.

First, there’s the damage that streaming did to compensation. Residuals—the pay actors and writers receive when the stuff they’ve already worked on is rewatched—almost totally collapsed in the wake of streaming platforms’ arrival. Seasons have also gotten shorter and production crews tighter, further cutting into writers’ pay and employment prospects.

Second is the rise of artificial intelligence, which could allow studios to replace a lot of human labor: write scripts without actual human writers, scan background actors once and then endlessly reproduce them in scenes after scene. All of which threatens, again, to reduce employment prospects for both groups.

Noah Millman recently argued that these are really two fundamentally different issues: The first fight is a classic fight between owners and workers over pay. The initial contracts established by the streaming platforms were just wildly unbalanced and unfair, cutting labor out of huge shares of revenue. And the strikes can and should rebalance the scales. But the second fight over A.I. is a more difficult conundrum; a classic case of new technology replacing labor, and forcing a larger social adjustment. Some forms of work have just genuinely been rendered unnecessary by A.I.—same as automobiles replacing horses and buggies—and we’re not going back.

I think Millman’s right, so far as it goes. But at a broader, forest-not-the-trees level, I think both fights are about the same basic thing. They’re both about technological shocks to a particular community’s norms of production.

More specifically, they’re about how, when those technology shocks came, one class of people within the Hollywood community—namely, the owners—basically rolled another class in the community—its workers and laborers. The owners used the shocks as an opportunity to change how the community’s revenue gets distributed internally; siphoning a much bigger cut into their own pockets, and leaving the workers with less.

The question I want to ask here is: Why did it happen like this in the first place? And why does this seem to happen so often when new technology arrives?

How the Technology Shocks of Streaming and Artificial Intelligence Were Felt

In plain English, Hollywood is a community of human beings who have all gotten together to produce a particular thing: movies and television. That community brings in revenue when it sells its product to the wider world, and it’s established contracts and agreements dictating what cut of that revenue everyone in the community will get. Crucially, those agreements and contracts were based on certain assumptions about how that production would happen—in the concrete, material sense—and how the final product would be distributed to consumers. Literally, who would physically do what, how it would get done, et cetera.

What any technological change does is it alters those concrete, material ways production and distribution happen. When that happens, the assumptions must change as well. All the agreements about who does what, and how they’ll be compensated, have to be rethought.

I think this is pretty intuitive and easy to see with A.I., again because workers are literally being replaced by technology. They’re not needed in that particular part of the production process anymore. So will they be able to find another place within the Hollywood community’s process to work? Will they have to move to a different industry entirely? What new skills will they have to learn? Will they be able to? Will there be enough work? Will those production processes have a place for them?

If all the answers are “no,” how do we as a society care for these displaced workers and the people who depended on their income? Will we?

The way the technological shock of streaming upended the community’s production and distribution process was more subtle, but just as important in its own way. 

Under the old system, movies and shows were produced by one TV network or movie studio, then sold to other TV networks for rebroadcast. The networks themselves often made their money from advertisers; sometimes from subscription fees. So you had multiple players all paying one another: studios and networks paying workers for labor, networks paying studios and other networks for content, advertisers paying networks for views.

What everyone in this chain of production and distribution paid each other—including what actors and writers got paid for residuals—was based on viewership numbers. So those numbers had to be public knowledge, shared between all the players involved. That was why, if you worked on a hit TV show or movie, you could rely on a decent income from the residuals whenever that show or movie got re-shown and rebroadcast.

On top of all that, the old technology of the networks imposed certain limitations: content had to be broadcast at certain times, and couldn’t just be called up by viewers and consumed whenever. That had a physical effect on production as well, influencing the length of shows’ seasons, how many episodes ran, and how much work could be expected for how many people. In other words, the state of technology at any given time creates material realities that guide the rhythms of production, as surely as the weather and the seasons guide the rhythms of farming.

Then along comes streaming technology. Suddenly, customers can call up whatever content they want and when, while just paying a flat fee for everything. So viewership numbers become a black box known only to the streamers themselves. And all the assumptions and habits about how many episodes get made for a show, how production gets scheduled, how many writers you need and who works on what when—it all gets thrown up into the air. So all the agreements and contracts about who gets paid how much, and for what, have to be renegotiated. When that renegotiation happened, the owners and the studios managed to strike new bargains that massively reduced the cuts of revenue actors and writers were getting relative to the old agreements.

Technological Change in an Alternate Democratic Universe of Worker Ownership

I’ve made the point before that all economic activity is inescapably political. Every industry (including Hollywood) and every firm in an industry (including all the studios and production houses and streaming services in Hollywood) are just groups of human beings cooperating to accomplish a common project. To do that, they have to figure out how to get along and how to organize their efforts. And “politics” is just the process of how we human beings order our lives together.

Now think about the question of “ownership” in this context. What it really means is governorship. If you own the A.I. system that scans actors and reproduces their likeness, or that straight-up creates digital actors and screenplays, then you govern that A.I. system—you get to decide what uses it’s put to, what products it creates. And you get the money that consumers pay in exchange for that product.

Similarly, when you “own” a company (like a production studio or streamer) what it really means is you govern that company—you govern that community of human beings. You get to tell everyone in it how production will happen, how the equipment and resources belonging to the company will be used, who will do what, what happens to the revenue the company brings in, how everyone will be compensated, who gets hired and who gets fired and when and why. And if they don’t like it, then too bad.

In both cases—whether we’re talking about a piece of equipment like an A.I. system or an actual human community—to be an owner is to have power over “the means of production,” in the Marxist parlance. Crucially, this is a legal right; a product of government and law. The owner can call upon the government to use its monopoly on legitimate violence to defend her power—her governorship—over that equipment and community should anyone defy her.

You could imagine a different way of doing it. Every company of multiple people in our economy, no matter how small, is a legal entity—and the law is something our society chooses, and chooses how to design. So it could be the law that every company has to essentially be a partnership of workers: every employee is an equal co-owner, and gets an equal vote to elect the board or executives or whomever does the governing of that company. We could insist that our economic communities govern themselves the same way our actual political communities—local, state, and federal—govern themselves: as democracies.

In that alternative democratic universe, what would the arrival of streaming and A.I. have looked like?

If the actors and writers and everyone who produced content for Netflix—or any other streamer—were all worker-owners of the company with an equal voice, it seems extremely unlikely pay and residuals would’ve collapsed the way they did. Production and distribution processes would’ve changed; work schedules would’ve changed, too. But the impetus would’ve been to keep workers as whole as possible through those adjustments. Sure, workers would still vie with each other within their respective company-communities over who gets what cut, the same way blocks of voters vie over laws and policies in our current political communities, local state and federal. But the point is, everyone would’ve had an equal vote—and equal representation—in these deliberations.

Indeed, in this alternate universe, “owners” wouldn’t even exist as a separate class within the community, vying for their own interests. It would just be different groups of workers and the management they’ve elected, all jostling with each other. By definition, the bargaining would’ve turned out differently.

As for A.I. systems, which are already the kind of physical capital usually owned by firms rather than by individuals, worker-owned production companies would still have put A.I. to use. Workers want more productivity and efficiency as much as anyone, especially if they’re all joint owners of the company. More productivity and efficiency means less work, yet more revenue. But in this alternative democratic universe, the way A.I. is brought into the production process would focus, again, on keeping all the workers in the community whole and employed—on supplementing existing labor as much as possible rather than just flippantly replacing it.

The Government Makes the Law, the Law Makes the Market, Then the Market Adapts to the Technology

The point here is that technology is not inherently scary or destructive, or inherently a threat to workers and jobs—despite technology often being portrayed that way in the discourse. Owners are a threat to workers and their jobs.

More precisely, the threat comes from how we’ve designed the laws of property and ownership and market structure, so that businesses are generally hierarchical and dictatorial communities, rather than democratic ones.

Owners, of course, also like technological advances because they bring in more revenue for less cost. But the way the “less cost” part plays out is that owners are quite able and happy to kick any worker to the curb if they judge that worker no longer necessary—with no institutional obligation to hear that workers’ voice or consider their needs. And if a technological change offers the chance to redesign contracts in a way that leaves the owners with more and workers with less, you better believe the owners will jump at that opportunity.

This state of affairs gives owners a huge in-built advantage whenever it comes time to fight over pay and compensation and work conditions. Owners literally control the social fabric workers have to enter into in order to have a job and earn a wage at all. On top of that, because governing companies means controlling their revenue streams, and because this is how our society has worked for a very long time, owners as a population have built up huge stores of wealth compared to workers. If a fight breaks out between owners and workers, and halts the flow of revenue coming in, owners can afford to wait a lot longer. That’s why one Hollywood studio executive told Deadline that, “The endgame is to allow things to drag on until union members start losing their apartments and losing their houses.”

In this world, technological change is simply an opportunity owners and capitalists can exploit to rob everyday workers blind.

This brings us to the traditional function of unions: to give workers some organizational clout; to inject at least some democracy back into the mix, and bring the owners’ and workers’ bargaining position at least a little closer to equity. But all this also just pushes the scales a bit back towards balance within a system that’s just designed to massively favor the owners from the outset. Hollywood is actually more fortunate than most industries here, because they do still have active unions and a tradition of organized labor. Across most of the U.S. economy, union power has nearly been obliterated. But even for Hollywood, negotiating fair contracts and compensation agreements is largely a Sisyphean task, rolling the boulder up the hill only to see it roll back down again.

Hollywood workers have engaged in repeated strikes over the last century to secure a more just cut of the revenue when technology changed: when television was invented, when the television networks got up and running, when foreign distribution markets became a big deal, when home video rentals and purchases became a thing, and so on. Now it’s happening again. And the reason it keeps happening this way is that we, as a society, designed it to: we chose to have an economy where companies are hierarchical authoritarian systems, and where workers are always put at a profound disadvantage relative to owners.

The rhetoric of “the market” obscures these realities. That rhetoric suggests that how companies (and physical capital) are owned, and how they are governed, is just the impersonal result of natural forces that predate human society. Which is of course nonsense. No market can exist without rules—of property, of ownership, of firm governance—and rules must be chosen by society.

The government makes the law, and the law makes the market, and only then does the market “decide” all these questions—including how new technology will be adopted and what the consequences will be.

A Democratic Economy Requires Democracy Between Companies as Well as Within Them

Let’s return one last time to that alternate democratic universe: The picture I painted was one where each worker-owned Hollywood company is a group of actors, writers, and all other manner of production crew, all moving as a unit from project to project. Which is admittedly not how Hollywood actually works. Instead, actors and writers and everyone else bounces around interchangeably from project to project. Most likely, it would often work the same in our alternate democratic universe. You could imagine roving, worker-owned companies of different varieties, coming together to produce and distribute one particular show or film.

But what that means is, in order for us to have a democratic economy, in which new technology is always absorbed in a just and humane way, we must have democracy between companies as well as within them. We must have democracy at the macro level, across the whole design of our economy.

Technologies that blatantly replace labor—like artificial intelligence—again make this particularly clear. Even a democratic, worker-owned company cannot resist the practical realities of a new technology that makes it more profitable for the workers to do a particular task with automation rather than human labor. Even in our alternate democratic universe, workers would routinely find themselves displaced by new tech, and have to find a new line of work.

So how do we deal with that?

First, insist on macroeconomic policy from our federal government—taxing, spending, and interest rates—that always prioritizes full employment, keeping unemployment as low as possible and labor markets as tight as possible. (Lobbying for precisely this has traditionally been another role for unions and organized labor.) If demand for labor always outstrips supply of labor, then every worker will always have bargaining power, even when they transition to a new industry requiring new skills. We’ll need a generous welfare state, with cash support, unemployment insurance, universal health care, universal housing, well-funded education for all, and so on. That will support workers in their transitions, and see to it that no worker is disciplined into taking a job by the threat of poverty. And we’ll need a national infrastructure to help people retrain and shift careers and industries when they need to.1

Of course, the taxes to finance all this will cut down on income and wealth inequality, lowering the ceiling on how powerful any individual or company can become, even as we raise the floor. That will help insure a democratic balance of power across the whole economy.

Next, beyond question of government spending and taxing, we’ll need more specific rules for how markets are structured, and what terms companies may and may not interact with each other on.

Consider antitrust law: Matt Stoller had a helpful piece arguing that a big cause of Hollywood’s current mess is the vertical integration that came along with the adoption of streaming. That’s when every step of production and distribution has been combined in a single company. (Think of how Netflix both makes content and distributes it, and you just pay a flat fee at the tail end.) Vertical integration actually used to be illegal, until the interpretation and enforcement of antitrust law was drastically loosened in the Reagan era. And crucially, vertical integration actually destroys markets, which only exist between firms, not within them. Stoller makes a compelling case that this loss of market dynamics and price signals lead to the wildly self-destructive bets studios made in the streaming era, as well as the collapse of residuals for actors and writers—recall that residuals were calculated from viewership numbers that had to be shared between firms paying each other for different steps in the production process.

If today, we still enforced antitrust law the way we enforced it in the mid 20th-century, the arrival of streaming and A.I. would’ve played out very differently in Hollywood. And in our alternate democratic universe, well-enforced antitrust law would allow any group of workers to break off and form a new company, if they thought their fellow workers within a company were treating them unfairly. Then they could bargain firm to firm, rather than worker to worker within the firm.

The government makes the law, then the law makes the market.

Finally, there’s intellectual property, which comes up again with artificial intelligence. As I said, ownership rights are just a set of rules designed by society. They’re meant to approximate how our moral intuitions layer atop a hopelessly complex real world, and they will inevitably do this imperfectly. That’s particularly easy to see with intellectual property, which deals with abstract ideas rather than concrete possessions. And it’s doubly easy to see with A.I., because A.I. software systems literally have to be trained on huge collections of pre-existing text and images and data—all of which were created at some point by someone’s labor. And that person is not compensated by the A.I. owner.

Now, if an actor is scanned and their likeness replicated, it seems fairly straightforward they should have intellectual property rights to that likeness. But what of an actor or script generated wholesale by artificial intelligence, and thus built atop the unsung labor of countless others? Millman has a clever solution to this conundrum: all material generated by A.I.—scripts, images, etc—should be public domain. I.E. no one should have intellectual ownership over it. 

Again, that’s a rule our society would have to choose, and our government would have to pass and enforce. There’s no “natural” answer to the question of how property rights should be designed.

The last, deeper truth here, is that all technology—indeed, all wealth creation, period—is like this: a collective, society-wide achievement, built by thousands of small steps and breakthroughs and insights by thousands of people over time. And only a handful of those people will wind up getting the ownership rights that actually get them a cut of the income stream that technology generates.

This has always struck me as one of the most compelling moral arguments for a universal basic income.2 We will never be able to adequately parse out each contribution an individual has made to our society’s collective wealth creation. The idea that any system of property rights, however practically necessary, can achieve that parsing is a fantasy. So the best way to handle the problem is to just guarantee every member of our society a basic stream of income, taken out of our collective wealth—wealth generated through the technology that we are all both privileged and burdened to live with.

There’s an attitude—or rhetorical stance, or exasperated lament—that’s quite common across the left-of-center spectrum: Republican voters and Trump supporters are now, as one person put it to me, a “cult.” They live in an alternative reality; a hologram, a matrix, a bubble of information and perception created by some toxic mix of ideology, blind partisan loyalty, social media and rightwing news outlets. They are unreachable, and impervious to facts or suasion.

Most importantly, they are completely indifferent to changes in their own material circumstances: no matter how much Biden and the Democrats may do to concretely improve these voters’ jobs, living standards, incomes, quality of life or whatever, they will keep on cheering and voting for the racist orange authoritarian.

This all evolved out of the whole “economic anxiety” debate that started before Donald Trump even won the presidency in 2016: Could support for Trump be at all traced to rage and alienation over the collapse of good jobs and a decent future for working-class Americans? Or was that support purely driven by cultural reaction and racism? Folks who took the second interpretation concluded that Trump voters wouldn’t budge, no matter what Democrats, progressives, and the left did to improve their lot.

Last week, David Roberts popped onto Twitter—or the Website Formerly Known as Twitter—and reminded me that I wanted to revisit this whole question:

It's an interesting experiment we're running. Is there any level of jobs & investment & economic improvement that could break the hold of [rightwing] media on red states? Does actual, tangible governance matter *at all*? Is public opinion connected to material circumstances *at all*? I am... not optimistic.

Roberts was referring to a piece by Greg Sargent, about how many of the benefits from the three big economic bills President Biden has signed so far are going to states that have either recently switched from red to blue—and thus become crucial to Democrats’ future victories—or that went to Trump in 2020 and could shift. Trump talked a big game about reviving manufacturing during his presidency, but didn’t actually accomplish much. Now it looks like Biden’s bills kicked off a striking boom in manufacturing investment. Sargent was exploring, with cautious optimism, the possibility that all this is already lowering Trump’s prospects in 2024, and could “reverse the drift of working-class Whites away from Democrats by addressing the economic conditions that purportedly alienated them.”

I’ve never liked the attitude Roberts gave voice to—that rightwing voters (or any voters) are just impervious to material change entirely. I was already throwing down in favor of the “economic anxiety” thesis by the time Trump won in 2016. And frankly, it often seemed to me that your own commitment to left-progressive values was called into question if you didn’t agree that support for Trump and the GOP is basically an impenetrable cult.

So I tweeted back that, “One of the strangest developments in the last six or so years is the conviction among many that being a good progressive/leftist means dismissing one’s fellow human beings as unreachable aliens; that all is hopeless and the fascists are gonna win.”

Of course, the temptation to fire off snide asides when people annoy you is a big reason I don’t like Twitter (or the WFKAT), and why I’ve dropped off the platform in recent years. So I figured I should do what sensible people do, and deal with this in long-form, where one can afford some patience and nuance. So what I want to focus on here is a pretty straightforward and practical question:

Namely, if the view that Roberts espoused is right, what’s the takeaway?

If support for Trump really is unreachable cultism, what then should Democrats and the left do? I’m often told that, as unfortunate as the “unreachable cultism” diagnosis is, we need to be “clear eyed” about these realities. Well, okay. What path forward do we actually see with our clarified vision?

A Skepticism That Goes Nowhere

Like I said, I’ve always thought the “economic anxiety” explanation for Trump’s popularity was, while very crude, basically correct. I think a lot of the social science that was thrown around to debunk “economic anxiety” was bad, or interpreted sloppily and incoherently. And I think skepticism of it flies in the face of everything we learned from the last time the western world faced massive economic dislocations and rising fascist political movements.

But I’ll admit another reason I championed the “economic anxiety” view is that it did offer a concrete path forward: moving the U.S. economy in a left-populist direction, towards more equality and broadly-shared prosperity, would weaken the underlying rage and alienation driving Trumpism, sap the movement’s energy, and simultaneously flip some of Trump’s voters into the Democratic Party camp. Perhaps most crucially, it offered a way to accomplish all this without compromising Democrats’ progressive positions on social, cultural, and identity issues—or at the very least it would minimize the need for such compromise.

So for folks who thought the “economic anxiety” thesis was nonsense—who believe Trumpism is just a raw counter-reaction to rising rights and inclusion for racial, ethnic and sexual minorities—what’s their alternative path forward? If a left-populist economic agenda won’t get us out of the downward spiral into reactionary ethnonationalist authoritarianism, what will? I’ve seen a lot of people spill a lot of ink over the years debunking “economic anxiety,” but I’ve never seen anyone move on to answer this next, rather obvious question.

You get much the same problem if you focus, as Roberts does, on the effect of rightwing media specifically. If Fox News and One America News and rightwing Facebook posts have created an all-encompassing alternate reality for Trump voters, what are we advocating for here? A domestic terror campaign to blow up all the headquarters and servers and equipment of those companies and platforms—presumably when they’re unoccupied, “Tyler Durden” style? Sending in government agents to dismantle those outlets and platforms, shut down the companies and confiscate all the equipment based on some pretense or other?

Obviously, no one’s advocating either option, because they would be insane and immoral and destructive and shred the liberal constitutional values that are supposed to make the function of America’s cultural and moral pluralism possible in the first place.

If we’re not doing any of that, what else is there? Everyone sitting down with their GOP-voting family members over Thanksgiving dinner and having it out over politics? Perhaps the slow, arduous work of door knocking, movement building, and persuading GOP voters one person at a time? Maybe a bunch of small-bore experiments in new civil society or nonprofit projects, or new ways to reach people via social media?

And to be very clear, I’m all in favor of on-the-ground movement building! I think Democrats could do pretty well just by taking their marching orders from Jane McAlevey. But it is, at minimum, exceedingly strange to think the cultural hologram of Trumpist ideology cannot be pierced by Biden putting a few thousand dollars in people’s pockets every month, or by Biden getting them employed by a public infrastructure project stamped with his name, but it nevertheless can be pierced by some earnest conversations on doorsteps and local movement organizing. Just imagine asking a local union organizer or activist if the job of persuading Republican voters would be made harder, easier, or neither by Biden and the Democrats passing a universal child allowance? I think we all know what they’d say.

If Trumpism Is Impenetrable Cult, What Are The Realistic Solutions?

The most supremely bizarre part of the whole “economic anxiety” debate to me was always that, if you do reject it as an explanation for Trumpism, there’s actually a very obvious alternative solution: the Democrats should slow their roll on social and cultural issues, moderate back to the center, and give anxious conservatives some of what they want on immigration and transgender issues and other identity battles. If Trumpism is purely driven by reactionary rage at progressive social change; if there’s no other agenda outside social issues that could dissipate and break up Trump’s coalition; and if continued victories for Trumpism is an existential threat to American democracy; then the only remaining option is to sacrifice enough on the social issues front to contain Trumpism, while preserving as much as you can.

That’s actually what writers like Eric Kaufmann, Ross Douthat, and Matt Yglesias have all advised doing, to various degrees. I think Yglesias is a particularly interesting case, because he strikes me as someone with genuinely progressive social values (unlike Kauffman and Douthat) but who also genuinely believes the “economic anxiety” thesis is bunk. He then followed those premises to their logical implication.

Yet my impression is that most folks in the David Roberts’ camp are actually furious at Yglesias for going down the road he’s on. So the most logical strategy that flows from rejecting the “economic anxiety” thesis is also a strategy that’s morally abhorrent to the very left-progressives who most loudly rejected that thesis. Which creates a genuinely weird set of stances: You’re asserting, on the one hand, that progressive social and cultural change is antagonizing reactionary white Americans, essentially poking the sleeping bear of fascism. Yet you’re simultaneously asserting that we are all morally duty-bound to keep those changes going; to keep poking the fascist bear until it actually awakens from its slumber and devours us.

Of course, it’s not impossible that this is an accurate assessment of our situation! The world is a broken, fallen place; there is no reason to assume all good things go together; sometimes all your options suck. But this is also an incredibly tragic vision. It’s just plain fucking weird that so many people who seem to earnestly want a more progressive-left world nonetheless stump for such tragic assessment with such conviction.

If you want to talk about rightwing media specifically, there’s a similar disconnect between premise and solution.

I actually think there are two plausible things Democrats and progressives could do to break, or at least weaken, the psychological hold the conservative media matrix has on GOP voters. The first is to sue outlets like Fox News into oblivion, either by more aggressively enforcing the anti-defamation laws that already exist, or changing those laws so the legal bar for proving defamation is much lower. The Dominion case, but multiplied over and over again.

Now, I don’t actually like the idea of loosening the libel definition, but it seems like it could have real, material consequences. Amusingly though, the only people who seem to be seriously thinking about this are Republicans, because Trump is personally obsessed with the idea, and because both Trump and his followers don’t seem to grasp the maelstrom they’d be plunging their own outlets and platforms into.

The other thing you could do is either scrap, or at least drastically reform, Section 230—the law that says internet platforms like Twitter and Facebook are not legally responsible for the stuff people post on them. I think it’s fairly obvious that the algorithms these platforms use to push content and juice user engagement—leading to more views, revenues, and profits—have also accelerated rightwing radicalization. So you could just change the law to say that if platforms use algorithms to push content and engagement, they lose Section 230 protection. Basically, tell platforms that people’s feeds should only show the content they’ve chosen to follow, in the order that content was actually published.1

But again, I don’t get the impression that the people lamenting the hold of rightwing media on Trump voters are particularly interested in reforming Section 230. Most of the energy in that regard seems to be coming from camps like the American Economic Liberties Project, and folks like Steve Randy Waldman. And they all strike me as pretty sympathetic to the “economic anxiety” argument.

To get back to Yglesias one last time, I have my disagreements with his whole “popularism” project. But I do respect it. Because Yglesias strikes me as someone who’s genuinely trying to find a way out of a very nasty impasse. I think he’s wrong about the factual nature of the impasse. But I think he’s really trying to understand the impasse and, based on how the impasse works, figure a way out of it.

What bugs me progressive pessimism with regard to Trump voters is that most of the people expressing it aren’t like Yglesias. For all the supposed need to be “clear eyed,” that pessimism usually doesn’t enable a search for solutions. If it did, then by now it would’ve produced some ideas that are actionable and morally agreeable to most progressives. Instead, what we’ve actually been doing is… trying to get enough Democrats into office so that we can pass policies to make American voters’ lives materially better.

You Can’t Afford Nihilism When You’re Trying To Hit This Small a Target

Two final observations about the David Roberts tweet that set me off on this essay, both of which I think are indicative of how this larger debate generally goes.

First, there’s an imprecision around exactly what population we’re talking about. Roberts just says “the red states,” which implies all GOP voters, or at least a whole bunch of them. But the Republican Party contains a lot of tribes, giving Trump over 74 million votes in total last time. So what portion is unreachable? All? Half? A third? That some molten core of Trumpist ideologues are beyond anyone’s aid but God’s, I do not doubt. But if they’re only 25 percent of Republican voters, who cares? Plenty of GOP voters just like Trump, rather than love him, or simply prefer him to the current alternative options. And the Democrats only have to peel off some of those voters, depending on where those voters are located, to dramatically change their own presidential and congressional prospects.

The other thing Roberts’ tweet implied is that Biden’s economic agenda represents, as I put it, “the far maximal edge of what policy could do to improve people’s material circumstances.” When you call Bidenomics an experiment in whether public opinion is connected to material circumstances at all, you’re saying it will eliminate that variable. And again, I think this is a common refrain when people lament the cultish nature of Trump supporters: Look how far left the Democratic Party has moved on economics since the Obama era! If this doesn’t convince those voters, nothing will!

But Biden’s policies obviously don’t represent that far maximal edge. That Democrats’ economic agenda could move so dramatically leftwards since Obama, and still be pretty tepid compared to the scope of what’s possible, just shows how deep in  the neoliberal hole the Party’s thinking has been. And what worries me—as much as I appreciate Greg Sargent’s cautious optimism—is that Democrats just haven’t done enough to make people’s lives better.

Now, I actually think Roberts would actually agree with this. (Everyone’s allowed to be a bit flippant on Twitter, or the WFKAT). But what’s important here is that there’s a big difference between policies that materially help voters in any old way, and policies that materially help voters in ways they can quickly recognize and attribute to particular political actors—policies that will both inspire voters’ trust and loyalty, and help them to engage more with politics, so that we can keep growing the coalition and move on to bigger and better things.

I think there’s a real science and objective, ecological, structural logic to identifying the policies that will do the second thing, and not just the first. As glad as I am to see the Democrats taking bigger swings, I don’t think they’re sufficiently attuned to that distinction. They’ve focused on pouring money into the economy in a grab bag of discreet ways, and encouraging an investment boom through tax credits. But most everyday voters probably aren’t going to trace the causal chain from Biden’s tax credits to a private company’s investments to the new job they just got.

Where are the job projects with Biden’s name plastered all over them? Are there checks going to people with Biden’s signature on them? The American Rescue Plan brought a dramatic expansion of the child tax credit, but it only lasted a year, and it still suffered from all the ways that distributing benefits via the opaqueness of the tax code knee-caps political movement building. The whole thing was just a massive missed opportunity. And given all that, I don’t think it’s surprising that Biden’s job approval on economic matters is still in the tank.2

I know Biden and much of the Democratic Party were willing to go bigger. And they really do face a lot of ridiculous structural barriers: the design and very existence of the Senate is insane; the filibuster is a ridiculous archaic deadweight dragging down American governance; Krysten Sinema and Joe Manchin are difficult, cantankerous sphinxes that almost single-handled held back a more expansive agenda.

I get it. But that’s also life. Shit is hard, and there are no prizes for almost saving the republic.

There are a number of policies that materially benefit Americans. Then there is the smaller number of policies that materially benefit them in ways that grab their attention, and build the mass movement to go even further. Then there’s the even smaller number of policies that do all that, and can slip through the gauntlet of structural barriers thrown up by America’s bizarrely-designed system of governance. It’s a small, precise target to hit. And it’s a big fucking boulder that will only start rolling very slowly, and we’re gonna have to push hard for a while before it picks up speed.

But that’s what Democrats, progressives, and the left gotta do. There’s simply no other option. That is something we need to be clear eyed about.

A specter is haunting progressive policymaking in America—the specter of the everything-bagel.

That was Ezra Klein’s take in an extensive New York Times op-ed a little while ago, arguing that progressives and Democrats often shoot themselves in the foot with a policymaking habit he calls “everything-bagel liberalism.” 

You might assume that when faced with a problem of overriding public importance, government would use its awesome might to sweep away the obstacles that stand in its way. But too often, it does the opposite. It adds goals — many of them laudable — and in doing so, adds obstacles, expenses and delays. If it can get it all done, then it has done much more. But sometimes it tries to accomplish so much within a single project or policy that it ends up failing to accomplish anything at all.

Klein uses examples like the CHIPS Act—new legislation trying to build some robust semiconductor manufacturing capacity here in the United States—which attaches a wealth of requirements to its subsidies: recipient firms must develop ways to increase hiring diversity; invest in local public transit, K-12 education, and housing supply; they sometimes must buy materials from American suppliers rather than foreign ones; and they must provide child care for their workers. The massive public investments the Inflation reduction Act is offering for green energy development come with a lot of similar requirements.

Klein starts the piece by looking at Tanahan, an affordable housing project in San Francisco, that went up unusually fast and for unusually low cost, because it was funded with private grants rather than public ones—which allowed it skip all sorts of rules about who it can hire, environmental review requirements, and other board approvals for various aspects of the project. “It is damning that you can build affordable housing so much more cheaply and swiftly by forgoing public money,” Klein concludes.

And he’s not wrong. Using public investments and industrial policy subsidies as leverage points to enact a buffet menu of progressive priorities seems like an excellent way to make sure a lot of that public investment comes to naught. Same goes for making those public investments run a gauntlet of zoning codes and enviornmental reviews and local board approvals. Yet America desperately—like, desperately—needs big and ambitious public investments, and needs them to work out.

At the same time, Klein doesn’t really offer any ideas for why Democrats and progressives got into the habit of “everything-bagel liberalism.” He hand-waves a final sentence about the need for “an intensity of focus that liberalism often lacks,” but that’s it. So presumably, the problem is just a lack of discipline among liberal politicians, or an unwillingness to tell particular constituencies “no,” or… something?

The thing is, if you can’t identify the “why,” you can’t really suggest ways to get policymakers out of the “everything-bagel liberalism” habit—other than scolding them.

“Everything-Bagel Liberalism” Is An (Accurate) Counsel of Despair

David Dayen was one respondent who wasn’t happy with Klein’s argument. He tweeted a whole bunch of examples of what happens when industrial policy doesn’t come with all these extra requirements and standards: you get a race to the bottom, where the employers who benefit from the public investment try to use the cheapest and most exploitable workers they can. They figure out ways to hire people who aren’t classified as employees, they wiggle out of using the unionized portions of their workforces, or they just abscond for right-to-work states where they can avoid unions entirely.

“The idea that you can’t put friction in the way of building or production is a path to a low-wage ‘jobs of the future,’ workforce,” Dayen argued. “And a surefire way to lose your political coalition because all you’re doing is sending workers through a grinder of McJobs.” Madeline Janis and Xavier de Souza Briggs also wrote a longform version of the same argument in The Prospect.

Granted, they agreed with Klein that the sorts of land-use rules and permitting and zoning issues that threatened the Tanahan project—which can also sink green energy infrastructure like large-scale solar and wind farms—are a real problem. But at the level Klein is concerned with, the land-use rules and the high-quality jobs rules all do the same basic thing: they add bureaucracy and red tape and gum up the works and make it less likely that the thing the government is trying to build actually gets built.

Neither Janis or de Souza Briggs nor Dayen actually engage with that argument, or try mount evidence that the “friction” these requirements create isn’t all that bad. They just assert that high-quality jobs are good, thus requiring that public investment create high-quality jobs is good. And presumably, we must simply accept the added frictions.

So this defense of “everything-bagel liberalism” is essentially a counsel of despair. Its implicit assumption is that America’s economic system and larger policy framework is so structurally biased towards exploitative capitalism—towards empowering owners to undercut workers and the broader public welfare—that the only tool we have is to use public investment to bribe, cajole, and force employers to do better. Addressing child care the way the CHIPS Act does, for example, is “a quiet acknowledgment, in the middle of the ostensibly ambitious CHIPS Act, that legislators do not believe America can build real support for parents,” as Leah Libresco Sargeant put it.

And there, I think, is the start of an answer to why “everything-bagel liberalism” happens, and how to fix it. Because in the short-term, at least, I fear that counsel of despair is correct. Which means that—assuming you actually give a damn about high wages, good work conditions, worker voice in their employment, affordable childcare, K-12 education, and all the rest of it—“everything-bagel liberalism” is a kind of best-we-can-do-right-now adaptation to facts on the ground.

Thus, the way out of “everything-bagel liberalism” is to change the facts on the ground; more specifically, change the larger ecology of the economic system and the economic policy framework that we’ve adapted to.

Introducing “Plain-Bagel Socialism”

Let’s stick for a moment with how the CHIPS Act deals with child care. Specifically, any semiconductor manufacturer that receives more than $150 million from the legislation must provide childcare for their workers, whether that’s by offering the service directly on-site, contracting with a child care provider, or giving their employees money to afford getting their own child care.

In Klein’s op-ed, Commerce Secretary Gina Raimondo’s offered an underlying economic logic for these requirements that makes perfect sense: among the workers who would build and run semiconductor manufacturing plants, unemployment is very low, and companies face labor shortages across the board. Which means every company needs to cast its hiring net as widely as possible. And if good childcare isn’t on offer, then they’re going to have a hard time hiring female workers in particular, even when those female workers have all the requisite skills.

Which is all totally true! But it’s true of every industry across the economy. Or, at least, it should be true. If we were running any sort of decent macroeconomic policy, every industry would face worker shortages all the time, because that’s just life when the economy’s at genuine full employment—which it always should be. So the need for affordable, quality childcare isn’t specific to a few semiconductor manufacturers or even just to the semiconductor industry; it’s applicable across the entire national economy. And that’s the sort of need that’s best addressed by a single, coherent, national policy dedicated to addressing it specifically. 

This is all true of most every need that the CHIPS Act and the Inflation Reduction Act try to tackle by attaching requirements to their subsidies. Every worker needs to be paid well, to have good benefits, to enjoy decent workplace conditions, and to have a democratic voice in their employment. Everyone needs effective transit to commute to their jobs, good K-12 schools to educate their kids, and a decent and affordable place to live. That women and minorities have a tougher time getting hired and breaking into new markets—that they often start at a disadvantage because they come from economically marginalized communities, and thus often need an extra leg up—is also true across wide swaths of the economy.

Making sure Americans have these amenities will expand the supply of labor across the whole economy, and make all sorts of different sectors and industries more productive. These are all worthwhile goals on the economic and moral merits, but also—as Dayen points out—worthwhile in terms of Democrats’ political self-interest.

But trying to provide for all those needs by attaching piecemeal requirements to each bit of public investment—and prodding individual employers to figure out each need for their workers—is a horrible patchwork solution. Some patches of the economy will get good child care, high-quality jobs, good K-12 schools, good transit, etc, and some patches won’t. Some workers will be well-served, and others very much won’t be. Employers themselves will do everything they can to avoid the costs of providing those amenities, whether it’s finding loopholes that allow them to take the subsidies while dodging the requirements, or just not taking the subsidies at all—thus undercutting the whole point of the public investment. And the employers who do take the subsidies anyway will get bogged down with additional hurdles and bureaucracy. Ultimately, both goals will be under-served: those universal needs will be addressed less effectively, and industrial policy will have a harder time achieving whatever it’s trying to achieve.

The solution, then, is to separate these goals out: address each one with its own comprehensive and national agenda. Making sure all U.S. jobs are high-quality should have its own dedicated policy. Investing in women and historically marginalized communities, so they can fully participate in the workforce, should have its own dedicated policy. Building up our green energy supply, massively increasing our housing stock in big cities, and developing a robust domestic manufacturing base for semiconductors should each have its own dedicated policy.

This will often mean removing those costs from employers entirely by providing the need via the government. In cases where you can’t do that, it will mean subjecting all employers to the same requirements and demands regardless of whether they’re taking industrial policy subsidies. By tackling each goal separately, along its own policy track, we’ll address each goal more coherently and effectively. 

Of course, in the context of American politics, all that means “socialism”—direct provision of universal needs via the government, utilizing big spending and regulation, with an aim towards making the economy more democratic and egalitarian. So let’s call this approach, “plain-bagel socialism.”

Some Practical Suggestions for Implementing Plain-Bagel Socialism

On the subject of child care, we could, for instance, do it through an Obamacare-like scheme to regulate and subsidize private providers. Or we could do childcare through straight-up government provision of a national public service. (That’s my preferred approach.) Similarly, we could refurbish the existing public K-12 school system with a big new federal policy, or try to do some progressive-conservative compromise, where we turn the Department of Education into a generous machine for distributing education vouchers while letting a thousand private school flowers bloom.

There are also options when it comes to improving the quality of jobs themselves. We could drastically hike the federal minimum wage—an option that does not get nearly enough love, in my book. Or we could move to a sectoral bargaining system, in which unions negotiate minimum wages and pay scales and more for an entire economic sector—and those agreements cover all workers, not just the unionized ones. Plenty of European countries already do this, which is why you often see far more workers there covered by union-negotiated contracts than are actually members of unions. (Hell, we could always have a federal minimum wage and sectoral bargaining!)

It’s also worth noting that the current U.S. approach to union law, in which union contracts are negotiated shop-to-shop and workplace-to-workplace, contributes to the “patchwork” effect we’re trying to avoid here. A strength of the sectoral bargaining approach is it imposes a baseline on the entire industrial sector, so no one employer has incentive to avoid unionization at all costs, and thus have a leg up on its unionized competitors.

Similarly, sectoral bargaining could set industry-wide standards for health care coverage, and other benefits like retirement, vacation time, sick leave, and so forth. Though I think it would be even better if we just removed the responsibility to provided those things from employers entirely: have a national system for single-payer health care coverage; drastically improve the generosity of Social Security so that employer-provided retirement is no longer so necessary; and provide vacation time, sick leave, and family leave through a single national funding system.

We should also put in a word for full employment—by which I do not mean what we have now, though it’s an improvement. I mean the conditions we had during World War II, when the national unemployment rate dropped below 1.5 percent. That sort of situation, when demand for labor so drastically exceeds supply, also drastically tips the balance of bargaining power between workers and employers towards the former.

That bargaining power backstops a lot of the things we’re trying to achieve here: its the leverage to demand better pay, better benefits, better working conditions, unionization, and more. The war mobilization led to the single biggest reduction of inequality in U.S. history, while setting off a two-decade economic boom after the war. It also disporportionately benefited marginalized communities, especially black Americans: When the economy is below full employment, some number of workers and businesses are by definition left unused by the wayside. Not surprisingly, the ones who do get left behind are the ones without the privilege, clout and connections to grab the jobs that remain: lower-income, less-educated, not-white, and not-male.

Genuine full employment wouldn’t be a cure-all. But it would be a massive shift in the baseline way society and the economy operate. And for the communities who would still need extra help to catch up—whether due to the lasting damage done by slavery and segregation, or other forms of exclusion and oppression—the way to do that would be through separate policy agendas that create national programs for community investment, public grants, job-retraining, and more.

Indeed, I’d argue that everything-bagel liberalism is often adaptating specifically to our failure to achieve full employment. Had the Tanahan project used public funds, for instance, it would’ve been required to work with small contractors. And the project pissed of the San Francisco unions as it is, because it saved money by going with a modular apartment manufacturer in another city—even though that manufacturer was itself unionized. Both the requirement to use small contractors and the general “me first” attidude of the local unions reflect a scarcity mindset: the assumption that the economy is always going to be underpowered, and thus there will always be too few jobs to go around. Which means you’re going to need legal rules to give the little guys an extra leg up, and every union must fight to maximize every last job it gets even if that means screwing over other unions.

The thing is, if the last 70 years or so are any guide, those assumptions will prove correct. (They will certainly prove correct if Larry Summers gets his way!) As it stands, even the relatively hot economy we have now—which is still well below World War II conditions—is something we manage to hit only briefly every two decades or so. The only way to really change the scarcity mindset—to change these legal rules and these institutional habits—is to actually get the economy to genuine full employment and keep it there.

“Everything-Bagel Liberalism” Is the Free Market-Friendlier Solution

The reason we’ve done such a bad job of maintaining genuine full employment is that the necessary policies run afoul of “free market” ideology. American leaders commitment to that ideology, or their reluctance to challenge it, is the great roadblock to “plain-bagel socialism” writ large.

World War II involved gobs of public spending and massive deficits, thus putting to use every last resource and worker in the economy. By constraining government spending, free market policies tend to keep the economy perpetually underpowered. As for inflation, we controlled it with taxes, with invasive regulations like price controls, and a lot of aggressive industrial management and economic planning. Free market ideology favors controlling inflation with interest rate hikes, because they simply squeeze credit conditions nationally, while leaving private capitalists free to run their businesses how they see fit in response to those conditions. That’s what we’ve been doing for roughly the last 70 years.

The basic purpose of free market ideology is to prevent the government from putting real resources—meaning people and materials—to use. The presupposition is that profit-driven private capitalists will always use those resources in better and more efficient ways. Thus the drive to lower federal taxes and federal spending, and to reduce the national deficit: less spending by the government means fewer real resources employed by the government, leaving more real resources available for private capitalists to use as they please. And since private capitalists should be able to rule over their economic endeavors unmolested, we must reduce regulations as well.

Some of the options in plain-bagel socialism involve a mix of “big government” spending and regulations; others cut down on the regulation by ramping up the spending, and just having the government provide a service directly. But in all cases, they do what free market ideology says you should not.1 Even more interesting is that free market ideology not only seeks to prevent the government from interfering with how private capitalists deploy resources, it seeks to prevent workers from interfering with those decisions as well. Hence its general opposition to unions, and to the policies that tend to deliver full employment. 

As I said, “everything-bagel liberalism” is essentially our society’s adaptation to the realities imposed by free market ideology’s dominance of our political system. All the needs that everything-bagel liberalism seeks to address are real, and vital, and they aren’t going anywhere. Our political system will keep feeling the bottom-up pressure to address them. And while plain-bagel socialism would be the most reasonable and coherent way to meet those needs, we keep hitting the firewall of free-market ideology, and thus get diverted into “everything-bagel liberalism” instead. “Tucking child care into CHIPS is a sleight of hand, where Congress can pretend that the cost of supporting children and families can easily and naturally be absorbed by the private sector,” as Sargeant put it.

All of which makes “everything-bagel liberalism” comparatively friendlier to free market ideology. Obviously, the most free-market friendly approach would be to not bother addressing any of these needs at all. But by addressing those needs via everything-bagel liberalism, we merely try to coax private capitalists into using real resources a particular way, rather than telling them how to use them—or simply taking those resources away from them for the government to use instead. 

In other words, Democrats and progressives so often default to this approach because—whatever its faults—it defers to the overwhelming pressure in our political system to leave the private capitalists in charge.

Not Everything Is Everything-Bagel Liberalism

I realize I’ve beat the “bagel” metaphor entirely into the dirt at this point. But I want to make one final distinction. 

Klein lumps together a whole bunch of different forms of red tape that can slow up efforts to actually build shit: zoning policy, environmental approval, disability law approval, requirements that public projects use small contractors, linking public investment to goals building out childcare services or improving workforce diversity. But some of these complaints are really categorically different challenges. 

When the CHIPS Act requires its subsidy recipients to provide childcare for their workers, for instance, that’s a pretty cut-and-dry case of two worthwhile goals—building a robust domestic semiconductor industry and providing all workers with child care—that are both undermined when they’re jammed together. On the other hand, regulatory hurdles like zoning rules, historical preservation rules, or getting approval under National Environmental Policy Act review, are all about giving local communities control over the course and nature of their own economic development, or making sure your construction project isn’t endangering habitats or wildlife. And those are goals that are just fundamentally incompatible with the goal of a national economy that can dynamically, rapidly, and effectively respond to challenges by building housing, infrastructure, and other needs. You can’t separate those two goals out to better address both. That’s just a brute trade-off between fundamentally incompatible values. 

I think you get into a similar problem with a lot of the “buy American” provisions attached to the CHIPS Act and the Inflation reduction Act. If you want American suppliers of railcars or solar panel parts or wind turbine components to be able to match foreign competitors on speed and quality, you have to give those domestic industries time to develop. More importantly, you have to drive demand to them right now, so they can learn by doing. As for price, American suppliers will never be able to match some foreign competitors on that front, because American labor is just flat-out more expensive. (Which is a good thing! It reflects Americans’ higher standard of living.)

So you can either buy the railcars and the solar panel parts that are built the fastest and the best and cheapest right now, or you can help develop American suppliers by accepting more slowness and cost and some lower quality in the here and now. What you can’t do is optimize both goals. You have to choose which value will win, and which will lose. It’s not an all-or-nothing question—you draw the line wherever you want—but the more you dial up one goal, the more you dial down the other.

Now, I do think some policies that fit under the “plain-bagel socialism” umbrella could help alleviate these collisions of values, and lower the stakes somewhat. One aspect of the housing crisis that I think is severely underdiscussed is that good employment opportunities have become really geographically concentrated in big cities. It will always be the case that cities offer more jobs with higher wages that rural economies and smaller markets. But what’s happened recently—the all-out collapse of good jobs ain rural America—is not normal. Getting back to full employment, and getting coherent national policies for investment in transit, education, and all that would go a very long way to revitalizing employment outside the big urban hubs.2

That wouldn’t solve the contradiction between the desire for local control and the need for a dynamic economy. But in the case of the housing crisis, it would at least lessen the collision between those two values, and lower the stakes. A more even geographic dispersal of good jobs would mean a more even geographic dispersal of demand for housing. Which would mean less need to build lots more housing in any given place.

Similarly, a commitment to full employment will make sure American suppliers and manufacturers are always getting all the demand they need as an aggregate population. And there are tricks to lower the value of the U.S. dollar relative to other foreign currencies, which would also push more demand to American suppliers in a general sense. But if you’re looking to protect, shepherd or encourage a specific domestic industry—through subsidies or tariffs or “buy American” rules attached to industrial policy—because you think that specific industry has national import of some form, then you’re back to having to make those inescapable trade-offs.

Ultimately, I don’t think it makes analytical sense to lump those inescapable trade-offs under the umbrella of “everything-bagel liberalism.” It makes much more sense to define the habit strictly as undercutting two goals when they could both be better served by separating them into different policy tracks. Because there’s a solution to that that can satisfy both values!

There’s no both-and solution to inescapable trade-offs. You just have to make a trade-off. Klein’s complaint—and the complaint of people who praised his piece—is that he thinks Americans aren't making the right trade-offs. He thinks they should prioritize speed and efficiency and economic dynamism, and they keep prioritizing buy American, and local control of community development, and local protection of habitats and wildlife.

I don’t even think Klein is necessarily wrong on the merits here. But the only fix is to convince your fellow citizens they’re making the wrong trade-off. And that’s just a different category of challenge.

For over two decades now, Supreme Court Justice Clarence Thomas has enjoyed the beneficence of billionaire real estate magnate Harlan Crow, according to a recent Propublica report: Thomas has taken annual trips on Crow’s 162-foot superyacht and on Crow’s private jet to various vacation destinations, and often stayed at Crow’s massive private Texas ranch. Thomas did not pay for any of this or reimburse Crow for it, and virtually none of this largess ever appeared on Thomas’ financial disclosures. Meanwhile, Crow has also been a lavish donor to rightwing political causes—to the total tune of around $10 million—including the outfit founded by Thomas’ wife.

Thomas and Crow say they are simply old and genuine friends. Nor does it appear Crow ever had business in front of the Supreme Court that would’ve caused a direct conflict of interest—though God knows the political causes Crow is invested in have. Meanwhile, the ethics rules governing Supreme Court justices are infamously lax, so the question of whether Thomas even broke them is somewhat squishy. (I think Dahlia Lithwick and Mark Joseph Stern make a good case that Thomas did technically fall afoul of them.)

As a result, everyone retreated to their respective corners for the obligatory partisan food fight. Democrats are gearing up investigations. Progressives view it all as further evidence that Thomas in particular is a rightwing crusader with brazen contempt for impartiality and propriety in his public position. And for folks on the right, this is just a nothingburger spun into a conspiracy theory with which Thomas can be forced out, or with which the conservative supermajority on the Supreme Court can at least be beaten into submission.

For myself, the whole thing actually reminded me of a quote I’ve seen bandied about by conservatives themselves my whole life: The only way to get rid of corruption in high places is to get rid of the high places.

The basic idea is that, if government screws with rich businesspeople like Harlan Crow—by taxing and regulating them—rich businesspeople like Harlan Crow are going to screw with it back—by deploying their influence and resources to shape taxes and regulations to their benefit. “As long as government is involved in controlling markets to some extent—regulating, taxing, exempting from taxes, subsidizing—corruption will run rampant,” as Tim Carney once put it.

Thus, if government would just stop screwing with rich businesspeople, corruption would go away.

The logic is pretty airtight, I guess. But it’s also an exceedingly odd line of reasoning, as it assumes that people object to corruption on purely abstract, almost theological grounds. As if the corruption itself, as a raw, disconnected moral fact, is the problem. If that were the case, then yes, we can just have the government stop doing things that would cause people to want to corrupt it.

But what people actually object to about corruption is that it prevents the government from achieving some social purpose. All those taxes and regulations and subsidies were passed for particular reasons! They’re there to do something. What people don’t like about corruption is that it undermines the purposes those taxes and regulations and subsidies were supposed to achieve in the first place. Yes, the individuals and public servants who engage in corruption unethical and immoral, but their personal lack of character is a second-order matter. The material consequences their corruption has for carrying out policy is the central issue.

Coming from conservatives, “the only way to get rid of corruption in high places is to get rid of the high places” is essentially “burn the village to save it.” If you don’t like corruption in government, stop government from governing.

Sympathy (To An Extent) For the Devil

Yet there is something I like about the quote: it’s an argument that stems from a fundamentally structural analysis. I tend to gravitate towards structural analyses—and structural solutions—over exhortations that human beings should just be morally better.

The implied reasoning behind the quote is that we have a collision between several material circumstances:

1. We have a lot businesspeople who don’t want to be taxed and regulated and generally screwed with by government.

2. Those businesspeople are often rich, and thus have a lot of resources and clout to throw around to prevent being screwed with.

3. We have a government that nonetheless insists on screwing with said businesspeople.

4. The public officials who run the government are going to be vulnerable to influence by the rich businesspeople who throw their resources and clout around.

The inevitable result of these four material circumstances is that we have lots of corruption. As long as we have Circumstance 3, businesspeople are going to use the realities of Circumstance 2 to lean on elected officials, government bureaucrats, regulators and civil servants to get what they want.

You can shout all you want about how corruption is immoral and unethical, and people should do better. But, as conservative often point out (Correctly, I think!) human nature is fundamentally fallen—sinful, venal, selfish. You’re basically shouting angrily at the sky for raining on you. So there’s not much you can do about Circumstances 1 or 4. The vast majority of businesspeople are not going to selflessly submit to taxation and regulation. Nor are they going to be principled small-government libertarians; they’re going to reshape the rules to benefit themselves personally. And lots of elected officials and public servants are always going to be vulnerable marks for this sort of thing.

Indeed, I don’t even think wealthy elites leaning on public servants to get what they want usually requires the outright self-dealing of bribes or payoffs. Powerful and rich elites tend to gravitate towards one another as social creatures, and gravitate towards political values that defend and justify their privileges. And that’s just the water in which our public officials, elected politicians, and court justices all swim.

I don’t doubt that Clarence Thomas and Harlan Crow are genuine friends. Hell, my friends are mostly all people with an interest in leftwing politics. And if any of them did have Harlan Crow’s means, I’d be happy they were devoting those resources to the cause. And if they ever invited me to ride their superyacht to the Seychelles for a few weeks, you better believe I’d take them up on it!

Of course, I’m also not an elected official or public servant. There’s a perfectly coherent argument that people in those positions, like Clarence Thomas, must accept unique responsibilities along with their unique privileges—including conducting their personal affairs with an unusual amount of scrupulous discipline. At the same time, on just a raw human level, I have a certain amount of sympathy for the devil here: I get why Thomas and the Wall Street Journal editorial board are peeved and standoffish about the idea that there’s anything underhanded here.

This is precisely what makes fallen human nature such a tricky bastard. The line separating corruption from the normal human impulse to commune with people of similar values is a vague and blurry one. 

You can and should have laws against corruption, and ethics rules that public servants are expected to follow. And you should aggressively enforce both. The strictures for elected officials need to be dramatically tightened, and really dramatically tightened for Supreme Court Justices specifically. But I think we should acknowledge that this is always going to be an effort to stop water from flowing downhill. It will always find the cracks, and there will always be cracks. Precisely because this is a structural problem: corruption is an inevitable outgrowth of the structural system that’s set up here.

What’s amusing is that structural arguments are unusual, coming from conservatives. They’re generally the ones emphasizing the need for individual character and moral fiber, rather than how the structural design of a system will push aggregate human populations in certain directions.

And I think conservatives’ enthusiasm for this particular structural analysis on the matter of government corruption can largely be explained by Corey Robin’s observation that conservatism is, at bottom, the impulse to defend the power and privilege of elites against their subordinates’ demands for more freedom and equality. Usually, when it comes to questions like why are some people rich and others poor, that reactionary impulse is best served by emphasizing individual character. But what to do about government corruption is a case where conservatives can jujitsu a structural analysis to serve the same ends.

A Good Analysis With a Really Bad Conclusion

At any rate, while I buy the whole structural argument up to this point, I think it goes entirely off the rails by concluding that the thing to do about the problem of corruption is to get rid of Circumstance 3—the fact that government regulates and taxes businesspeople and “interferes” in the market.

But as it happens, you can follow this whole analysis without reaching that conclusion! You could instead decide to get rid of Circumstance 2—the fact that businesspeople have vastly more money and wealth and influence than the rest of us. We can still have businesspeople who don’t want to be taxed and regulated, and we can still have the government tax and regulate them anyway. We don’t even need to do anything to improve Clarence Thomas’ or Harlan Crow’s personal moral character. But if Crow just didn’t have a private jet or a superyacht or a palatial East Texas estate in the first place, he wouldn’t be able to actually do much of anything about his dislike for taxes and regulations.

Put more specifically, it is the enormous inequality of our society—the vast difference in wealth and income between the rarefied top and the rest of us—that creates the structural circumstances that give rise to corruption. This problem also gets solved if everyone has a superyacht and a private jet, lest any pro-capitalism midwit accuse me of wanting to make everyone equally poor. The disparity is the root cause of the problem. The less any one person can offer public officials unusually rich goodies compared to what everyone else can offer, the less of a problem corruption becomes.

Moreover, pursuing a more economically equitable and egalitarian society strikes me as a far more plausible structural solution to corruption than just trying to convince your fellow citizens to have the government not govern anymore. We have lots of wealthy, modern, western democracies out there. And precisely none of them are the “night-watchman state” of libertarians’ dreams. But plenty have far less inequality than the United States.

Indeed, the United States itself was far less unequal in the not too distant past. An amusing side note in the Wall Street Journal’s defense of Thomas was their huffiness at Propublica’s “adjectival overkill” and calling Harlan’s 162-foot private boat a “superyacht.” Paul Krugman helpfully pointed out that even the yachting community itself considers anything over 98 feet a “superyacht.” But more to the point, we can trace the fall and rise of American inequality via the superyacht: In 1898, at the height of the Gilded Age excesses, the launch of J.P. Morgan’s personal 302-foot steam yacht was featured in the New York Times. By 1955, a Fortune essay on the compression of living standards noted that, for top executives that year, “75 feet is considered a lot of yacht.” These days, Crow’s 162-footer and even J.P. Morgan’s 302-footer are pipsqueaks compared to the battlecruiser-esque monstrosities owned by our modern capitalist masters of the universe.

“If you had any doubts about whether we’re living in an era of extreme wealth concentration, comparable to or even surpassing the Gilded Age, the superyacht boom should quell those doubts,” Krugan noted. And if our wealthy elites have so much surplus wealth that they can afford to fling some into a 500-foot, high-luxury hole in the water—as my grandfather would’ve called it—imagine the gravitational pull they can exert on over-awed and less-than-scrupulous public officials.

The Obligatory List of Suggestions for Tackling Inequality

A full tour of all the ways to reduce American inequality is well beyond the scope of this newsletter. But it’s just lazy to identify a problem and not at least take a stab at a solution. So let’s sketch the basics.

Most people will immediately point to higher taxes and a more generous welfare state, and that’s certainly an important part of it. Any decent society should have things like a universal child allowance, affordable and universal health care, universal rights to affordable housing and education, and arguably a universal basic income as well. Social Security should be made much more generous than it is. As for taxes, the aforementioned Fortune article from 1955 fingered the progressive income tax rates passed under the New Deal as a big reason top executives lived much more modestly mid-century—they essentially imposed a maximum income on the country that would be around $4 million per year in today’s dollars. Capital gains should also be treated as ordinary income, and I would throw in a direct tax on wealth as well.

But all those policies also amount to grabbing money and redistributing it after the market has already made an initial distribution. There are a lot of things we could do to change that initial distribution as well. 

A big part of the post-New Deal compression in inequality was actually the macroeconomic policies of World War II. We spent absolute gobs of public money in the economy, hiring everyone we could get our hands on. We did not use interest rates to manage the resulting inflationary pressure, but instead turned to taxes and regulations like price controls. And we massively expanded union power and membership. All of which delivered gigantic growth in incomes, especially for the most marginalized Americans, while squashing the amount of money left over to go to the capitalist ownership class. We got the lowest unemployment rates we’ve ever seen, a two-decade economic boom, and the single biggest compression of American inequality in the country’s history.

The lesson there is that macroeconomic policy should focus on permanently maximizing full employment, and use tools other than interest rates to control inflation. We should drastically raise the minimum wage and rebuild unions, and then move on to setting up sectoral bargaining across the whole country, and ultimately just get rid of the capitalist ownership class entirely by making every company a worker-owned democracy.

A huge reason wealthy elites have so much money is that they get to “own” the companies all the rest of us work at, and siphon “profits” out of the revenues before the rest gets used on investment and wages. We should just turn that spigot off at the source. 

Exactly What Do You Mean by “High Places,” Kemosabe?

I’ll end by going back to that quote, and note one further oddity: It is extremely strange to say that we must get rid of corruption in high places by getting rid of the high places, and then identify the “high places” as the public government offices where tax and regulatory policy gets finalized. 

Members of Congress make between $174,000 and $194,000 annually. The Speaker of the House gets $223,500. As of eight years ago, the highest paid folks at the Federal Reserve made just over $300,000. (Though it sounds like most everyone at the agency makes under $200,000.) Clarence Thomas himself makes $285,000 a year.

Granted, these six-figure salaries are a lot more than what most Americans enjoy. But they also exist within a reasonable envelope of relatability: median individual income in this country is roughly $38,000 per year. (Median household income is around $71,000 per year.) So you’re talking about pay for public officials that’s usually only five or six times what the everyday American makes—as opposed to the top one percent of private earners, who make roughly twenty-one times that. The average wage of the top one-percenter is, in turn, a pittance compared to Harlan Crow’s net worth, and the kind of regular spending income it generates. And Crow is small potatoes compared to an Elon Musk or a Jeff Bezos.

To look at these numbers and conclude that the “high places” we need to rein in are the offices of our public servants, rather than than the offices of private capitalists, is… well, it’s a take.

I suppose the conservative will reply that our public servants set policy and the rules that private elites must conduct business by, so their pay does not reflect their true power. But the whole point of the “high places” quote is that, despite the power to make policy, public officials will nevertheless be influenced, intimidated, and enthralled by the grandiosity of the privately wealthy. That’s why the “revolving door” is such a problem: folks put in their time in public service, then abscond for the private sector, where the pay is much better, and they can use their experience of government’s internal guts to help their new private paymasters get the best deal they can.

So yes, let’s roll with the structural analysis and the structural solution. To get rid of corruption in high places, let’s get rid of the high places. Just, you know, the actual high places.

The world of Washington, DC politics has a bunch of weird little traditions that you only discover over time. For instance, the House of Representatives’ Committee on Education and Labor apparently gets a name change whenever majority control of the chamber flips. In fact, “the Committee on Education and Labor” was just its name under the Democrats over the last two years. After Republicans won control of the House at the start of the year, they switched it to “the Committee on Education and the Workforce.”

As you can probably guess, Republicans ditched the term “Labor” because it carries the whiff of commie sympathies. But read their explanation for the switcheroo, and what’s really striking is this little nugget: “The Left prefers the term labor because it creates a sense of enmity between employees and employers which union bosses and left-wing activists seek to stoke for political gain.” 

Researching last week’s piece on workplace democracy, I stumbled across an op-ed that Republican Senator Marco Rubio wrote in early 2021, gingerly suggesting the GOP explore alliances with workers against “woke” corporate leadership. But first, he had to do some obligatory throat-clearing in a similar vein: “Republicans have rightly understood the dangers posed by the unchecked influence of labor unions. Adversarial relations between labor and management are wrong. They are wrong for both workers and our nation’s economic competitiveness.”

Notice the wording: the term “labor” creates a sense of enmity. Implying there is nothing inherent to relationship between employers and employees that could create enmity naturally; rather, conflict must be shoehorned in from outside the relationship, by ideological busybodies and self-interested bad actors. Rubio then goes on to imply that conflict between employers and employees is not just unnatural, it is wrong; it is destructive, and always to be avoided.

Again, if you’ve watched U.S. politics long enough, you start to notice recurring patterns. And another example is this idea that happy comity between workers and owners is the proper state of affairs towards which all well-meaning people gravitate—and that conflict between the two camps is both artificial and extremely unpleasant. Hence a skittishness about unions, and a skepticism about organizing workers in general, that extends beyond the GOP to plenty of centrists and Democrats as well.

This notion is, of course, all horseshit. But we’ll get to that in a minute. First, I want to tease out how this thinking, while horseshit, also touches on a very deep tendency in American political life. 

Economics Is Politics, and Politics Is a Problem

Put succinctly, Americans kind of hate politics. We poor benighted weirdos who follow politics are in the minority. Most Americans don’t follow politics, and don’t like thinking about it.

Politics inevitably involves fights and anger and tension; deal-making and horse-trading and ugly comprises of principle. In any community where people have different needs, values, and priorities, all of which can’t necessarily be harmonized—which is every community ever—that’s the only way to hash out disagreements and arrive at a workable solution. It’s completely unavoidable, and also completely natural. But natural or not, most people don’t really like watching this whole process go down; they find it unpleasant and disconcerting.

There seems to be a romantic notion floating out there in the culture that if everyone is coming to the table with good intentions, then even if they have different values or backgrounds, consensus should be pretty easy and painless to arrive at. Politics should be close to a frictionless process, in other words. And if it’s not, something must be going wrong, and someone must be coming in with ill intent.

Why this is all so, I don’t know. My suspicion is that human neurology and psychology had about 2 million years to adapt to life in small hunter-gatherer communities, and then roughly a quarter of a percent of that time frame to adapt to life in large cities and nation states. When the relevant community is small enough that you can plausibly know the face of every person in it, and at least a little about their lives, the work of politics probably is a lot closer to frictionless! When the community in question is 360 million people, I don’t think it's surprising that most people kind of recoil or short circuit.

I pointed out in my last newsletter that every company is itself a political community. Because doing economic activity requires answering the questions: What should we build? What tasks should we take on? Who should do what? For what compensation? And how should resources be distributed amid all that? These are all just specific variations of the universal question posed by politics, “How are we to order our lives together?”

Another way to put this is simply that all economic activity is a subgenre of politics—including all relations between workers and owners, employers and employees. So everything that people hate about politics is also stuff they’re going to hate about economic decision-making. So I actually think the Republicans’ gut revulsion at “adversarial relations between labor and management” is not just hackish pro-business bullshittery, but often a genuine and deeply-felt sentiment. It’s a foolish and destructive sentiment; but nonetheless an honestly felt one, with some pretty deep roots in human nature.

My last piece also argued that culture war conflicts within workplaces could be settled with more legitimacy for all concerned if workplaces were more democratic. The trick about democracy, though, is its legitimacy comes from making conflict visible. The whole idea is “one person, one vote”—everyone has equal leverage over everyone else; equal power to make their demands known and felt. Everyone has an equal capacity to impose friction. And then we hash it out.

Admittedly, that can be rather unpleasant. Democracy is probably a lot like exercise or eating your vegetables: Doing the good and healthy thing—and doing it consistently over the long haul—can just be a grind. It’s just a hard fact of life you can’t get around.

And yet, in the realm of formal politics, I’d actually say Americans have gotten fairly good at practicing democracy. (Recent Trumpian crises aside, anyway.) We’ve conquered temptation and established the virtuous habits; we’ve gotten good at consistently eating our vegetables.

But we still think, mistakenly, of economic decision-making as a separate realm from formal political decision-making. We haven’t extended the habits of democracy into economics. In fact, our country’s policymakers and political culture actively resist doing so. Because in the economic realm, we still default to the assumption that the presence of conflict means things have gone wrong.

Free Market Ideology: Ice Cream Forever

One of the big reasons I think free market ideology has such an appeal on the right is precisely because it offers the seductive fantasy of escaping politics’ incursion into economic life. When it comes to conflict in economic decision-making, free market systems hide the ball; they lure us in with the idea that we can have ice cream as much as we want.

First off, a central feature of free market systems and their ideology is private ownership of firms.1 (Which really does need to be understood as fundamentally different from private ownership of possessions and things.) Owners and executives decide all those aforementioned economic questions about how to deploy resources and who does what for how much pay, and then the workers follow orders. The workers may not like their orders, but there is no way for them to make their dissatisfaction felt; they have no democratic voice by which to impose friction on their employers. (No way except for unions and organizing, which are illegitimate under free market ideology.) It’s a mix of oligarchy and dictatorship. Private ownership of firms is just a form of firm governance—authoritarian governance, specifically.

Authoritarian governance can be a very pleasant experience for the authoritarians themselves, along with their supporters and acolytes and enforcers. By definition, they do not feel the friction of conflict, since authoritarian government provides no legitimate means for anyone to impose friction on the ruler. And this feeds back around into the authoritarians’ own sense that they are the true will of the people they rule. No one’s telling them “no,” after all! It really does feel like the dream has been achieved. And when conflict does rear its head, it really does feel fundamentally illegitimate; like something has broken down and gone awry. That’s equally true of how political dictators and authoritarians experience the world, as well as the economic dictators and authoritarians of America’s ownership class.

Defenders of the free market system will reply that we do not need worker democracy within firms, because the competitive free market itself provides workers with a democratic voice. Every economic relationship is individualized and voluntary: If you don’t like the price at which someone is selling you a product or service, or the price at which they’ll buy it, you can go find another seller or buyer. If you don’t like how a business is run, what it pays, or the work conditions, you don’t have to be their employee. You can go work somewhere else. There is no decision that you have to live under if you don’t like it. This fundamental right of exit gives everyone the same bargaining power, and the same amount of leverage over everyone else. The principle of “one person, one vote” is thus achieved by workers “voting with their feet” for the employer they prefer.

This also means there is no genuine conflict—or, to be more precise, no natural conflict—in a free market system. Conflict is a communal phenomenon: the community must collectively come to a decision, and everyone must live with it even if they don’t agree with it—or be coerced into living with it. (And politics is, of course, irreducibly communal.) Conversely, in the free market, the circumstances that create conflict may arise, but conflict itself never actually occurs; people just break off the relationship and move on.

You could point out that the realities of grotesque income and wealth inequality in our country should render all these conceits obviously absurd: Clearly, there is conflict going on, and someone is getting screwed. But according to the moralistic folk-wisdom derived from marginal productivity of labor theory, a competitive market system naturally compensates everyone in accordance with their contribution to society. If you want your income to be higher than it is, you need to become more productive: work harder, work longer, or upgrade your skills. The only other option is to take money you don’t deserve away from people who do deserve it.

In other words, in this framework, it is not even conceptually possible for unions and organized labor to be forces for justice. The only possible way “bargaining” and “negotiations” can raise workers’ pay is theft through bullying: Unions come into the peaceful, functioning market order and create unnatural and unnecessary conflict with ill-intent.

Free Egalitarian Choice in Theory, Authoritarianism In Practice

We can briefly sketch all the ways the real world obstinately refuses to live up to the free market ideal. For the sake of simplicity and workability, the mathematical economic models that backstop free market ideology make all sorts of assumptions about how the world works that are, in reality, either exceedingly rare or utterly impossible: things like zero transaction costs (resources can go everywhere, and new firms can be set up, all instantaneously) and perfect universal knowledge (everyone knows the qualities and risks of every product and service).

Even something like perfect competition, an ideal we can at least sort of approach, requires aggressive antitrust enforcement and policing of anticompetitive behavior by employers (all regulation that free market enthusiasts generally oppose) and full employment (a state the U.S. economy has achieved in, at best, 10 years out of the last 80).

Then there’s the fact that modern market capitalism did not spring fully formed from the aether, with every participant starting at an equal level of income and wealth from whence they can then make their choices. It emerged slowly, over time, absorbing the already-existing disparities of wealth and power created by centuries of empire and colonialism and monarchy and slavery and feudalism and every other form of exploitation and domination under the sun.

All these discrepancies—between the free market fantasy and the real world as it actually is—introduce power imbalances, and thus coercion, into the system. And all those imbalances run in the same direction: giving owners, employers, and the wealthy power over employees and customers. Companies know if their product is flawed or their work conditions are dangerous while customers and workers often do not. Transaction costs and the lack of perfect competition favor big market incumbents, giving them monopoly power to screw customers and monopsony power to screw employees. The constancy of unemployment and the constancy of poverty mean millions of people throughout the economy do not have meaningful choices, but must take whatever deal they can get, no matter how exploitative, just to avoid starving.

As a result, free market systems create de jure authoritarianism through capitalists’ private ownership of firms. But underneath this is also a layer of de facto authoritarianism, created by how we structure our “competitive” markets, aggregating overwhelming power and leverage to a relatively small population of owners and executives and investors, and leaving everyone else at their mercy. And for that small population of rulers, all these circumstances collude to create the illusion—the hologram, the virtual reality—of comity; of an escape from the ugliness and pettiness of political conflict.

This all isn’t just some perverse irony of human self-delusion; it’s a critical feature of free market ideology’s appeal. If we ever achieved a world where workers’ right-of-exit had real force, and really gave them equal power in economic decision-making, we would be cast right back into the problem created by unions and the leftwing quest for economic democracy: We would have conflict again! Owners would no longer give orders that workers obey, they’d have to actually negotiate with workers over how economic decisions will be made. And they’d often lose those negotiations! We’d have friction, and we’d have it everywhere. The illusion would be utterly shattered.

Free market ideology must keep offering an egalitarian world of freely-choosing individuals in theory, while delivering authoritarianism in practice. That’s its whole selling point. The ownership class can keep eating ice cream, while believing it’s eating vegetables.

With Friends Like These, the Free Market Doesn’t Need Enemies

One recent concrete example of this contradiction, and the concrete ways it plays out, should suffice: If the federal government runs fiscal and monetary policy correctly, while properly regulating market concentration and competition, we can create an environment of full employment and robust competition for labor. Thus it is at least possible to approach the free market ideal in a few limited respects: Under full employment, workers really can pick the job that is best for them, and not just any job that’s available to stave off destitution; their right-of-exit really does become leverage to demand better pay and work conditions from employers.

As I mentioned, the U.S. has not achieved this state often. But it has, on occasion, briefly approached it, in fractured fits and starts. In the years immediately before and after the pandemic, we got unemployment down to 3.5 percent, and strong wage growth for lower-income workers especially. We can do better, but it’s closer to full employment than we’ve been in decades.

And employers responded by absolutely freaking the fuck out.

See the flood of stories about worker shortages, rising costs of labor, “quiet quitting,” and all the rest of it—each one a sign that, for once, workers actually have the leverage to turn down job offers they don’t like and set at least some of the terms of their own employment. There are literally stories about how employers are disturbed at how few employees are willing to put in more time and effort than they’re paid for. Imagine being so accustomed to your position as the exploiter at the top of the food chain that when your employees refuse to give you free labor, it strikes you as some sort of calamitous breakdown in the social fabric.

It’s important to remember that actual competition is a hellish experience for owners and employers. They are under constant pressure to give up power and profits to either improve pay and work conditions, or to invest in better technology and business models to stay ahead of the competition—or, most often, both. It’s a situation they work their asses off to avoid.

The irony is that even getting close to the free-wheeling, egalitarian world of the free market ideal actually requires constant husbandry of the economy by the government—through regulation, fiscal policy, and monetary policy. We pretend that “small government” is synonymous with “free market,” when in fact approaching the actual social state envisioned by the free market ideal requires all sorts of constant care and management by a very powerful, very active government with plenty of coercive power. 

Meanwhile, the rich and powerful are constantly deploying their vast monetary, cultural, and political influence to prevent that husbandry from happening. And the fans of the free market fantasy are constantly encouraging and defending and aiding the rich in doing so. The real world does not just fail to live up to the free market ideal because the real world is messy; it also fails because free market ideology itself opposes the policies and practices that would bring the real world at least a little closer into alignment with the ideal.

Again, this is central to free market ideology’s ability to seduce: For the ownership class, the day-to-day pleasantries of being the authoritarian and the dictator is what confirms for them that the free market system is delivering on its promise of an escape from conflict. But that distribution of power must also be forever defended and maintained, without anyone quite realizing that defending dictatorship is what they’re doing. So the specific policies that are collected under the umbrella of free market ideology are conceptualized and sold as policies that defend individual freedom from “big government” and “big labor,” while in practice those policies entrench the reality of oligarchy and dictatorship under private capitalist ownership.

Taking Fallen Human Nature Seriously

Do employers and owners and their defenders know they’re doing all this? In at least some instances, the answer is certainly “yes.” But for the most part, I doubt it. I think most of them really do fall for the illusion. “It's difficult to get a man to understand something when his salary depends on not understanding it," as Upton Sinclair once quipped. Owners and employers are, like the rest of us, only human, and the heroes of their own stories.

Another pattern I’ve noticed in American politics—and a bitterly amusing one—is conservatives’ belief that, unlike liberals and leftists, they understand human nature as fundamentally fallen; how we are all prone to self-delusion and sin. So you would think that conservatives, of all people in politics, would be most open and receptive to everything I’ve just laid out. Hell, my entire argument is basically just Lord Acton’s observation that power tends to corrupt combined with Christ’s warning that it is easier for a camel to pass through the eye of a needle than for a rich man to enter the kingdom of God.

Instead, it is a bedrock precept of conservative politics that owners and employers are benevolent: “Though the Left likes to treat employers like predators, we know that most job creators have their employees’ best interests in mind,” Republicans also asserted in their explanation for the committee’s name-change. Apparently, like a Latin American strongman and his subjects, employers know the true will and needs of their workers. When it comes to the “job creators”—the people who, according to the wisdom of the ancients, are more prone to sin than any of us—it seems that all this business about fallenness goes right out the window. For them, the standard laws of human nature are suspended.

For all the talk of the modern Republican Party becoming “working class,” their base remains employers—particularly small businesses, small proprietors, pass-through companies, and mid-tier capitalists. There are interesting divisions among the capitalist class these days: big, publicly-traded corporations and their investors and executives are somewhat friendlier to Democrats, thanks to the expanding popularity of social progressivism. But the privately-held companies, family businesses, and pass-through entities traditionally associated with “small business” remain much more politically reactionary—and have grown in size and clout to match their publicly-traded counterparts.

But one trait all these owners and capitalists share is their position as employers. They are the rulers in America’s authoritarian workplaces. They set their workers’ pay and decide their workers hours and conditions; they draw their profits and incomes from the same pool of revenue that supplies their workers’ pay; and their sense of ownership over their companies requires their workers’ subservience and obedience.

The owners and capitalists are the ones trapped in the hologram; the illusion that private ownership and the free market system have delivered the dream of “comity” in economic relations.

And their supporters in the GOP and the American right are caught just as fast in this virtual reality. These are the people Republican politicians rely upon not just for donations, but for actual feedback “from the voters” on how governance should proceed. They are the social waters Republican politicians swim in; they are often the social circles that produce those politicians. They create and sustain the foundations and think tanks that make up the rightwing’s brain trust.2 And the whole crew responds ferociously whenever that illusion is threatened.

To the tyrant, peace and comity and brotherhood are what happen when everyone does what the tyrant tells them, with dispatch and without complaint.

If you’re reading this newsletter, you’ve probably heard about the recent internal civil strife at New York Times, over its coverage of transgender issues.

But if you haven’t, basically what happened is some staff at the Times wrote a public letter criticizing the paper for sloppiness and transphobic bias in its front-page coverage of medical care for transgender children. Editors at the paper then wrote an internal memo defending the coverage and reprimanding the letter writers for coordinating with outside advocacy organizations and for publicly criticizing colleagues by name.

Next, leadership at the union for the paper’s staff defended the letter for “raising concerns that conditions of their employment constitute a hostile working environment.” That sparked the anger of other staff at the New York Times (plus some outside commentators), who shot back that criticism of the substance of coverage—and of fellow staff who wrote the coverage—falls outside the bounds of “workplace conditions.”

It was a whole thing on social media for a day or two.

I’m not going to get into the substantive merits of the Times’ coverage of transgender medical care, nor the merits of the criticism of that coverage. I have my opinions on all that, but transgender issues are definitely not my bailiwick.

Topics like unions and worker rights, and especially economic democracy and firm governance, however, most certainly are my bailiwick. Who decides what a company does with its resources and what rules it operates by, and why do they have the power to do that? And I think those questions actually played a powerful subterranean role in this particular row—sitting there right under the surface, shaping the terms of the whole dispute.

The especially interesting thing about this kerfluffle was the claim that editorial decisions by the paper—what gets covered, how it gets covered, etc—fall under the heading of “workplace conditions,” and are thus “protected activity for staff.” The background here is that U.S. labor law allows workers to form unions and negotiate and argue with management when it comes to certain subjects like pay, hours, and workplace conditions. And so long as they stick to those topics, labor law protects them (ostensibly, anyway) from retaliation, like being fired.

The internal memo, that the New York Times’ editors sent in response to the initial letter, stated that, “We do not welcome, and will not tolerate, participation by Times journalists in protests organized by advocacy groups or attacks on colleagues on social media and other public forums.” In other words, if the initial letter qualified as “protected activity,” then that memo was threatening an illegal retaliation under U.S. labor law.

That was certainly how the staff who wrote the letter interpreted matters in their public follow-ups. Leadership at the NewsGuild of New York—the union that includes the Times’ staff, as well as plenty of other media staff in New York City—wrote their own letter that seemed to take the same tack: “Employees are protected in collectively raising concerns that conditions of their employment constitute a hostile working environment. This was the concern explicitly raised in the letter at issue here.” All of this also puts a bit more meat on their argument: anti-transgender bias in the New York Times’ coverage creates a hostile work environment for any Times staff who are themselves transgender, which is what makes the coverage a matter of workplace conditions.

The thing is, if there’s a category of “protected activity” for some forms of worker organizing and speech and public criticism, that implies other forms fall outside the protected zone. So, say, a union at Tesla can argue with and challenge Elon Musk for better pay, hours, safety measures in the factories and so forth, but they can’t tell Elon Musk that the cybertruck is a bad idea, and demand he pursue an entirely different product line. (And seriously, who thought that aesthetic monstrosity was a good call?)

Presumably, at a newspaper like the New York Times, the equivalent “product line” decisions would be the editorial ones about the scope and design of coverage. Which is why some prominent commentators reacted with particular scorn to the notion that the initial letter from the Times staff was “protected activity.” 

As I mentioned, some other prominent staff at the New York Times felt the same way. “Criticism of workplace conditions does not include attacking the journalism of other members,” one Times reporter wrote in the Slack channel. “I strongly object to this letter [from the NewsGuild] and I would hope other members of the unit agree with me.”

Other prominent reporters at the Times wrote yet another letter (I know, there were a lot of letters) declaring, “Factual, accurate journalism that is written, edited and published in accordance with Times standards does not create a hostile workplace,” and that, “We are journalists, not activists. That line should be clear.”

Now, I am not a lawyer. My understanding is that the boundaries between what is and isn’t protected activity are constantly getting negotiated in fights like this one. But my guess is that Josh Barro is right, and if this actually goes before a court or the National Labor Relations Board, the idea that the coverage created a hostile work environment, thus making criticism of that coverage protected activity, won’t fly.

But the deeper question I want to push on is, why do we have this division in the first place? Why do workers get protection from retaliation on some topics, but not others?

It is the labor of a company’s workers—their time and sweat and tears and, on occasion, actual blood—that makes the product line possible, be that product line cars or newspaper stories or anything else. Why should those workers, as a collective democratic political community, not get a say over how their labor gets used and deployed?

It is a curious feature of life in America that we understand our society to be a democratic one, yet much of our daily life is spent participating in civil institutions that are wildly anti-democratic.

I’m speaking, of course, about our workplaces.

While a lot of people might instinctively balk at calling businesses “political communities,” that is obviously what they are. Politics is just the art of deciding how we order our lives together. (Thank you, Aristotle.) Every business and company is just a group of people who come together to cooperate towards a common purpose, which requires making collective decisions about who does what and how resources are deployed, as well as about what rules will organize their life together. In other words, they’re a community that has to do politics, every bit as much as a nation state is.

One of the key features of how any community does politics is its system of governance: the process by which those collective decisions are actually made. For the United States, that system of governance is democracy—or elected representative democracy, if you want to be persnickety about it. But, while worker-owned co-ops do exist, the system of governance for the vast majority of businesses in our society is either dictatorship or oligarchy.

A single individual, or family or small group of individuals, own the company and hire management and make all the decisions that the employees must follow. Or a bunch of shareholders own the company, and they get to vote for representatives who hire management and make all the decisions, while the employees still just follow orders. In either case, the workers don’t get a voice and don’t get to vote, and live under leadership that is not accountable to them in any way. Nor is this point just some provocative technical description; life in American workplaces often really is like life under dictatorship, with all the daily humiliations and injustices that entails.

Now, my guess is the dictators at the New York Times are fairly nice, as far as America’s workplace dictators go. But dictators they remain. The editors at the New York Times who sent that internal memo get to make decisions that dramatically affect the collective daily life of the Times’ staff—who gets hired, what they’re paid, the rules of collegiality they must follow, what they cover, and how they cover it. But they are not democratically accountable to that staff in turn. They are merely accountable to the New York Times’ owners: the Ochs-Sulzberger family.1

The long-running purpose of labor unions like the NewsGuild of New York is to inject at least some democratic voice for workers into this system—to make life in American workplaces at least a little bit less like life in Putin’s Russia. Of course, America’s unions have been under sustained assault by both businesses and policymakers for decades. Even in parts of the country friendly to unions—and many parts are very unfriendly—actually getting a union up and running is a trial by fire. The union membership rate for private sector workers in this country is just 6 percent. And like I said, U.S. labor law, as its currently written, limits what topics that democratic voice can actually weigh in on.

Of course, for the American right, even that limited democratic voice for workers is too much. They consider unions a menace, and antithetical to the principles of capitalism. In the squishy center, there’s usually a kind of status quo bias that the current division between a democratic voice for workers on pay and conditions, and a dictatorship of owners for business and product decisions, is right and proper. My guess is that’s where folks like Josh Barro and Andrew Sullivan and the managing editors at the New York Times fall.

But the traditional, old school leftwing position—or the position as I understand it, and the position I certainly associate myself with—is that the end goal should be total worker democracy, from top to bottom, for every workplace in the country. Not just a broader range of topics for unions and worker dissent to weigh in on (though that would also be a good thing) but the replacement of capitalist ownership of all companies with worker ownership—in which boards and manegement and executives are democratically accountable to the staff they oversee. My guess is that a fair number of the New York Times people who wrote the initial letter criticizing their paper’s and a lot of the people who defended them, are pulling from that tradition.

In which case, the technical legal dispute over what does and doesn’t count as “workplace conditions” is something of a stalking horse for a more fundamental fight over how far workplace democracy should actually extend.

The New York Times brouhaha raises broad questions about how journalism should be practiced: How much “free speech” should staff be allowed? Should that freedom extend to working with outside organizations, or to public criticism of colleagues and supervisors? Should papers defer from writing stories that may be intellectual honest, but may also inadvertently provide ammunition to malicious political movements? How does one distinguish journalism from activism, anyway? Is there even any distinction that’s actually coherent?

Everyone who piped up to fight about those questions was arguing over what the “right” answers were, when there obviously aren’t any “right” answers. These are prudential calls, with each answer coming with a different mix of costs and benefits. And while these questions are particular to journalism, every company out there is going to face their own versions of these dilemmas.

If we Americans think of ourselves as a democratic society, then the obvious solution is for each company—each political community—to hash out which answers to those questions they want to be governed by, using an internal democratic process. But that’s precisely what American companies almost never do. And, more importantly, we all accept it as totally normal that it’s something they never do! This inevitably creates all sorts of contradictions in how we’ve gone about prosecuting this latest round of workplace culture war fights.

On the one hand, the people opposed to the new, more aggressive forms of social progressivism (I guess we’ll call it “wokeness”) seem to believe they’re standing up for a silent majority of Americans—and, more importantly, a silent majority of workers at the companies being roiled by the wokeness wars. Which is a democratic impulse. On the other hand, those critics default to viewing the ownership class as the obvious means for fighting this new social progressivism. The general sentiment seems to be that owners and managers at lots of companies, from media to Big Tech and more, have indulged “woke” hysterics from their staff too much, and need to reassert their dictatorial prerogatives. The reaction from folks like Sullivan and Barro wasn’t to ask if a majority of Times staff actually agreed with the initial letter’s criticism, or agreed with its interpretation of “workplace conditions.” They simply declared that interpretation out of bounds, and expressed hope that the Times owners would put the riffraff back in their place. Which is very much not a democratic impulse.

It’s also rather ironic, since there seems to be a good possibility that if the New York Times actually was a genuine worker democracy, the staff who wrote the letter criticizing the paper’s transgender coverage would lose. It’s anecdotal evidence, but the scuttlebutt is that the NewsGuild got some serious push-back from Times staff when it held a townhall to discuss the whole row.

Indeed, the very fact that the social progressives were at loggerheads with Times management makes this fracas somewhat noteworthy. Often in these sorts of stories, its executives and management pushing and supporting the new social progressivism, whether by firing employees who violate that progressivism’s cultural norms, or by having employees sit through diversity trainings and seminars that present pretty specific moral and analytical takes on American history and race relations. And when conservatives protest this sort of stuff, the response from their opponents is usually a knee-jerk invocation of owners’ private property right to run their companies as they see fit. So no one is actually trying to think through, in any sort of consistent and coherent way, how workplace democracy is supposed to actually apply to this new round of culture warring. And folks on the left really ought to grapple with how much they’re relying on the anti-democratic governing structure of American companies to push values from the top down, without the legtimacy that comes from slogging your way through the democratic process.

Conservatives will likely also complain that unions themselves have “gone woke.” After all, the NewsGuild sided with the letter writers instead of the New York Times editors. (Though you could certainly argue this was less an endorsement of the letter writers’ argument, and more the standard saber-rattling that any union usually—and rightly—engages in whenever there’s a tiff between workers and management.) And I have no idea if the NewsGuild’s leadership had reason to believe most Times staff are actually sympathetic to the letter writers, or if they just got too far out over their skis. But the fact is the leadership of the NewsGuild is democratically accountable to the people who live with their decisions, and they can be recalled if a majority of those people disagree with them. The same cannot be said for the editors and management at the New York Times.

So conservatives have a few options here. They can acknowledge that the only democratically accountable institution in play here—the unions—is fighting for cultural politics and values they don’t like. In which case, conservatives have to aknowledge they’re in the minority, and then decide if their going to accept or reject democracy as a legitimate governing system.

Or they can claim the unions aren’t really representative of the workforce. This wouldn’t be an insane argument; like I said, the private sector union membership rate in the U.S. is just 6 percent, and the overall membership rate is just 10 percent. I think you could also make a case that most of the social progressivism is coming from unions that represent college-educated urban professionals, who are demographically much more likely to lean towards those sorts of cultural politics. But in either case, the solution to conservatives’ dilemma would be to massively increase union membership until its voting base is more representative of Americans as a whole.

In general, if a political community is governed as a dictatorship or oligarchy, that arguably makes it easier for a loud and highly motivated minority to grab the reins of power, even if a decisive majority of the political community disagrees with the rules that minority imposes. In a genuine democracy, you have to win a majority of your fellow citizens—or at least a majority of their representatives. In a dictatorship or oligarchy, you just have to win the ear of the small number of people who wield unaccountable power over everyone else. That’s something that everyone upset over the rise of “woke capitalism” should think a lot harder about.

Instead of directly confronting the anti-democratic nature of how we’ve designed ownership rights over businesses, we just sort of endlessly circle around the topic. We build these weird rules and institutions that inject some democracy, but only under particular conditions. Or we build liminal legal structures as an alternative to democratic voice: If workers don’t like the values of their employers and executives, they can’t just vote the bums out, but they can sue the bums if there’s a sufficiently sophisticated argument for a “hostile work environment.”

If we think democracy is the best system of politics we’ve devised to actually hash out disputes in a diverse community with lots of competing values, and come to decisions everyone can live with as legitimate, even if they disagree with the decisions—or if democracy is at least the one system able to get close to that ideal some of the time—then presumably we need to be practicing it in our places of employment as much as anywhere.

The fact that we’re not probably goes a long way towards explaining our current culture war malaise: why no one’s happy, why everyone feels like they’re getting screwed, and why everyone seems to be going a bit crazy.

If you know my previous work, I’ll be covering a lot of economics; plus other issues, politics, philosophy, movies, and really whatever strikes my fancy. It’s my newsletter! The current plan is at least two installments a week.

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For the upteenth time in my adult life, America is headed for a debt ceiling crisis.

The U.S. federal government borrows by selling U.S. Treasury securities — i.e. bonds and such. And the debt ceiling is a statutory limit, passed by Congress, on the total face value of the bonds the government can sell.

Since the federal government pretty much always runs a deficit—a shortfall between how much it spends and how much it taxes in a given time period—it keeps adding to its total load of debt, and thus keeps bumping into the debt ceiling. Congress has always reached deals to raise it. But should it ever fail to, then presumably federal spending would immediately have to drop until it’s even with tax revenue, so all borrowing can stop. That would mean gigantic cuts to all sorts of federal programs, and quite possibly a default on the debt the U.S. government already owes.

We technically reached the current limit of $31.4 trillion on January 19. But the U.S. Treasury Department has some tricks—referred to as “extraordinary measures,” in policy-speak—to keep federal spending going for a few months without technically borrowing more. Those will last us until sometime in June, which will be the real “drop dead” date for a deal.

Since we’re currently in the shit, and since I imagine this is far from the last debt ceiling fight we’ll see, I figured an overall “table-setting” newsletter on the issue was in order.

The most fundamental thing to remember about the debt ceiling is that it’s a case of the U.S. Congress flagrantly contradicting itself. Whatever else you make of the issue, the bedrock fact driving the whole mess is that Congress has passed laws saying irreconcilable things.

The Treasury Department and the other agencies of the U.S. government do not spend a single solitary cent without Congress’ authorization. They do not collect one single cent in taxes or other revenues without Congress’ authorization. And when federal spending exceeds revenues, other laws passed by Congress say the Treasury Department cannot just print money to make up the gap; they have to borrow.

But with the debt ceiling, Congress has also created an arbitrary limit on the total number of U.S. Treasury bonds the federal government can sell. So we’re always running the risk that the spending and taxation combo Congress has authorized will require a level of borrowing that Congress has not permitted. Legal scholars Neil Buchanan and Michael Dorf call the collision of these three laws the “trilemma.” And assuming we actually hit the debt ceiling, it will place the U.S. President in an impossible bind: “He can, at most, faithfully execute two of the three laws in question, but not all three,” as they put it.

This constitutional and economic crises-in-waiting also creates an opportunity for particularly ruthless politicians: Policies that would never pass the legislature on a normal up or down vote can be demanded as the price for enough votes to raise the debt ceiling and avoid catastrophe. Fights over the debt ceiling become a way for politicians to have their cake and eat it too—to cancel the decisions of previous Congresses, without having to muster the votes to pass an actual, specific repudiation of those laws. And in recent decades, Republicans have become particularly enthusiastic about exploiting this bit of leverage.1

Democrats currently hold the White House and the Senate. But the GOP recently won the slimmest of slim majorities in the House of Representatives. And apparently House Speaker Kevin McCarthy had to concede to another debt ceiling fight to get certain GOP factions to back his speakership. Then we hit the debt ceiling shortly after, and here we are.

The most obvious solution to this ongoing cycle of stupid crises is to simply get rid of the debt ceiling entirely. But plenty of people in both parties—including President Biden himself, apparently—oppose that option. The general thinking seems to be that the debt ceiling helps maintain fiscal discipline. Bracketing aside the question of whether our ever-increasing debt load is a genuine problem (it’s not), the “fiscal discipline” argument ignores the blunt fact that if Congress wanted to spend less money or raise more tax revenue, it could simply pass less spending or raise taxes. There’s no need for this bizarre two-step. You might as well rack up a big credit card debt, then refuse to pay the bill, and call that “fiscal discipline.”

Meanwhile, various proposals to get around the debt ceiling, should Congress fail to raise it, have prompted accusations of caesarism: that doing an end-run around the debt ceiling would violate America’s constitutional balance between Congress and the Presidency, aggregating even more unaccountable power to the latter. Which again ignores that all the various bits of spending legislation that pushed us past the debt limit are the laws of the land as much as the debt limit itself.

If the executive branch ignores the debt ceiling, yes, it will be disobeying Congress. But if we hit the debt ceiling, and federal agencies just stop doing the spending authorized by Congress—from Social Security benefits to wages for federal employees and everything else—they will also be disobeying laws passed by Congress. They’ll just be disobeying different ones. In either case, you get a breach of the Constitution’s separation of powers.

The U.S. government deficit spends by roughly 12 percent of gross domestic product (GDP) at the moment. Thus, obeying the debt ceiling would require an immediate cut to federal spending equivalent to 12 percent of GDP. That is an absolutely massive reduction. For comparison, the Great Recession reduced GDP by around 9.5 percent before the economy started growing again. And that was while federal spending was going up and the federal deficit was increasing—as tax revenues fell and automatic welfare programs kicked in and the 2009 stimulus took effect—countering the drag from the collapse in employment and investment.

Then there’s the multiplier effect: every dollar the U.S. government spends helps to employ someone in the private sector, which leads to a further consumption increase, and so on. Meaning every dollar of federal spending actually tends to increase GDP by a dollar plus some more. And the reverse holds true for reductions in government spending. So if we cut federal spending by 12 percent of GDP, the actual fall in GDP would likely be larger. Probably around 18 percent, and perhaps even more.

In other words, if we just leave the debt ceiling as is, and cut spending in June to obey it, we’ll be in for something worse—quite possibly much worse—than the Great Recession of 2008.

Another issue is that U.S. Treasury bonds are a benchmark safe asset around the world. Every portfolio and financial trade, from the most humble retiree’s investment strategy to the biggest and most complex transaction Wall Street can dream up, relies on the assumption that U.S. Treasuries are a safe hedge—the gold standard for risk-free investment. That’s because the U.S. federal government, like House Lannister, always pays its debts.

But the shortfall between federal spending and tax revenue includes payments on the debt the U.S. has already taken on. So if we cut enough spending to abide by the debt ceiling, the U.S. could default on debts it already owes. Theoretically, we could avoid doing that; but only by cutting deeper into other programs, wreaking further havoc in the real economy.

What happens if we do default on debt payments? Well, no one really knows. Presumably investors and institutions around the world would start dropping U.S. Treasury bonds from their portfolios, maybe to a modest extent, maybe to a huge extent. But the Federal Reserve could always step in to buy those bonds and keep interest rates on an even keel. Frankly, it is extremely unusual for chaos in financial markets to impact the real-world drivers of economic health: investment and employment. The causal arrow generally runs in the other direction—it’s the spending cuts that result from a debt ceiling breach that would really destroy investment and employment, and thus tank the financial markets. A more likely problem is the U.S. Treasury sell-off would also drive down the value of the U.S. dollar relative to other currencies, making our imports more expensive and driving up inflation. So we’re talking about a potential inflationary shock on top of a sudden change to U.S. fiscal policy that’s already pretty much guaranteed to set off a recession bigger than what we saw in 2008.

But no matter how you slice it, it’s not a good mix, which is why the debt ceiling creates such a potent opportunity for hostage-taking. Politicians can effectively put a gun to the head of the U.S. economy, then threaten to pull the trigger (by refusing to vote for a debt ceiling increase) unless we give them whatever policy concessions they demand—which they of course couldn’t pass under normal circumstances, otherwise, why tie them to the debt ceiling?2

Which is precisely why the Biden White House and the Congressional Democrats shouldn’t do a deal. This is completely unsustainable. Not only is it the economic equivalent of juggling a live hand grenade, it’s a complete perversion of the way legitimate decision-making in a representative democracy occurs. A legislator might as well walk onto the House floor wearing a suicide bomber vest, and threaten to set it off if their colleagues don’t vote for the policies they want. To their credit, Democrats seem to understand that this time, and are refusing to negotiate over a debt ceiling increase.

But the problem with games of chicken is that it’s never actually guaranteed that the other guy’s nerves will fail first, even if they’ve repeatedly failed in the past. Patterns continue until they don’t. So let’s say no one’s nerves fail, the cars actually crash, we don’t get a Congressional deal, and we reach the drop-dead date in June. That kicks matters over to the executive branch, since its the Treasury Department and other agencies that actually carry out the fiscal policies Congress has authorized.

Other than obeying the debt ceiling, what are the executive branch’s possible options? There seem to be three big ones: just ignore it, mint a trillion-dollar platinum coin, or have the Treasury Department sell bonds at a premium.

Ignoring the debt ceiling, and carrying on borrowing and spending as if nothing has happened, is what Buchanan and Dorf actually advise doing, on the grounds that it’s the “least unconstitutional” option. People sometimes point to a clause of the 14th Amendment that arguably renders the very existence of the debt ceiling unconstitutional, but Buchanan and Dorf’s point is that you don’t even need to get that detailed; simple respect for the separation of powers will suffice. Because, if the executive branch disobeys the debt ceiling, that’s all it disobeys. But if it obeys the debt ceiling, that leaves a pot of money far too small to carry out all the programs Congress has authorized. And at that point, the Treasury Secretary and her department will have to just unilaterally decide which programs will still get funding, and how much—i.e. they’ll be picking and choosing which laws to disobey among all the spending laws Congress ever passed. Because what else can they do? Congress has told them not to sell any more bonds, but it hasn’t told them how to apportion the resulting cuts. So obeying the debt ceiling results in a much worse “power grab” by the executive branch than disobeying it.

Next is the trillion-dollar coin option. If you’re on Twitter (God help you) or in the weeds on this stuff, you’ve probably heard of this. Physical coins and cash are produced by the U.S. Mint, which is part of the Treasury Department. As I said earlier, the law forbids the Treasury Department from just minting U.S. dollars to pay for federal spending. But it turns out Congress unwittingly created a loophole in that rule, with legislation that allows the Treasury Secretary to mint, at their discretion, a platinum coin of any denomination they wish. So the idea is, we hit the debt ceiling, the Treasury Secretary orders the U.S. Mint to make the trillion-dollar platinum coin, then it’s deposited in the Treasury Department’s account at the Fed. And poof, the Treasury Department has one trillion dollars in its account to continue spending with, no further borrowing needed.

Rohan Grey has a paper arguing that minting the coin itself is fully within the Treasury Department’s authority as delegated by Congress. And since it allows the executive branch to continue obeying Congress’ spending decisions, as well as Congress’ orders to not borrow any further, this option is actually on firmer constitutional footing because it provides an escape from the “trilemma.” Buchanan and Dorf disagree, based on how they interpret the debt ceiling statute, and their doubt that the Supreme Court would actually allow the relevant platinum coin law to be used for such an inventive purpose. I find Grey’s position more persuasive, but I’m hardly an expert.

Of course, the Biden administration could presumably be sued for following Buchanan and Dorf’s advice as well. And in both cases, the White House would find itself before a very unsympathetic Supreme Court with a rightwing supermajority. On the flip side, and again in both cases, it’s hard to see who could sue the Biden administration in the first place, outside of members of Congress themselves. To bring a suit, you have to have standing—i.e. you have to show the executive branch’s decision harmed you in some way—and the whole point of both these gambits is to prevent harm to the rest of American society.

As for selling bonds at a premium—the latest option to enter the discourse—here’s how that would work: A Treasury bond has a face value, and it has an interest rate it pays, but the amount of money the bond actually sells for is a function of both. So the Treasury Department could get considerably higher than the face value of the bonds it sells, if it offers a really high interest rate. It’s called selling at a premium, which happens all the time in financial markets. And crucially, the debt ceiling only limits the total face value of bonds the Treasury Department can sell. There’s no restriction on how much interest the Treasury Department can pay, or how much it can get for those bonds.

So the Treasury Department could use whatever money it still has in its accounts to start paying off existing bonds it owes, then it could sell new bonds for the exact same face value, but offer much higher interest rates. This would swap out bonds of equivalent face value, so it wouldn’t increase total face-value debt and thus breach the debt ceiling. But it would also get more money into the Treasury Department's account than it had before, allowing it to keep federal fiscal operations going longer.

The power to sell bonds with any kind of interest rate structure it prefers sits well within the Treasury Department’s powers, so it’s hard to see how any plausible constitutional challenge could be raised. Along with just ignoring the debt ceiling, this approach only requires the cooperation of the Treasury Department, whereas minting the trillion-dollar coin requires the cooperation of the Federal Reserve as well.3 On the other hand, ignoring the debt ceiling is a one-and-done solution, and presumably you’d only have to mint a trillion-dollar coin once or twice, whereas selling bonds at a premium is something you’d have to keep doing iteratively as long as the crisis lasts—presumably with ever-higher interest rates.

I’m honestly not sure which is the “best” route. But I’m less interested here in parsing the particulars of the executive branch options than in what the reactions to those options tells us about American governance. This debate crosses over into the “here be dragons” part of the constitutional map, and that tends to reveal people’s unspoken assumptions about what’s “really” important and how the world “really” works.

For instance, President Biden didn’t say it would be irresponsible to ignore the debt ceiling; he said it would be irresponsible to not have one. He thinks we should keep the trilemma in place! It’s hard to believe he’s actually thought through the governance consequences of that position. Rather, many American leaders in both parties seem afflicted by a bone-deep religious conviction that the country spends too much; and that any outcome that reduces the debt is just inherently more legitimate, even if getting to it risks political and economic upheaval. As Buchanan and Dorf point out, no one ever contemplates having the executive branch just unilaterally raise taxes, even though that would be no more unconstitutional than unilaterally cutting spending. The unspoken instinct here seems to be that the debt ceiling creates an unfortunate-but-necessary backstop to force the country to adopt certain fiscal policies that the normal, legitimate democratic process isn’t willing to adopt on its own.

In his paper, Grey observes that the trillion-dollar coin option also breaks people’s brains in particularly strange ways. Beyond Buchanan and Dorf’s legal reasons for rejecting the coin option, they also have some strange worries about mass social psychology. Buchanan and Dorf are themselves perfectly aware that money is a social construct: mere pieces of paper and digital bytes, imbued with meaning (or “backed,” in the common parlance) by nothing more than our collective trust in one another. They know the U.S. government can create as many U.S. dollars as it wants, just like a scorekeeper in a baseball game can “create” as many points as they want. But Buchanan also seems to think this is a kind of gnostic wisdom, properly known only to the elect: “If people understand that money is a social contrivance but continue to go along with the group delusion (as I do), great.  When too many refuse to go along, however, we are all in danger,” he writes. “People on high-wires should not look down, and the experts should not tell them to do so.” And in his estimate, minting the trillion-dollar coin would be a very dramatic way to encourage everyone to glance past their feet.

Setting aside the blatant elitism of this position—that most Americans couldn’t handle knowing the true nature of money without rioting in the streets or crashing the markets or recreating the pilot episode of The Last of Us or something— it’s worth considering that Buchanan and Dorf get the causal arrow backwards: It’s not that the economic system works because everyone participates in the “group delusion” that money has value. It’s that everyone participates in the “group delusion” because the economic system works. And if that’s the case, then any disruptions caused by the spectacle of ignoring the debt ceiling or minting the trillion-dollar coin pale in comparison to the concrete effects of actually obeying the debt ceiling and cutting spending.

There’s a weird tendency in these debates to assume that ideas and cultural abstractions are what drive material conditions on the ground, rather than the far likelier and less mystical possibility that it’s the other way around. Perhaps Americans can understand the true nature of money just fine; perhaps they probably already do, if pressed for a moment. And, after watching the spectacle of the trillion-dollar coin go down, perhaps they would simply carry on with their economic lives as before, but now with a slightly better understanding of the true shape and limits of the U.S. government’s fiscal capacities.

One last oddity is how all the major players—President Biden, Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell—keep insisting that all the executive branch options are nonstarters, and only Congress can solve the debt ceiling crisis.4 On the one hand, I get David Dayen’s argument that they have to say this, because if they admitted otherwise, then any chance of the Republicans surrendering goes out the window. You don’t admit the executive branch options are actually options until you absolutely have to. (Whatever anyone says for strategic or optical purposes, it’s hard to imagine either a Treasury Secretary or a Federal Reserve Chair refusing any of these schemes if the country’s back was really against the wall.)

On the other hand, do we actually need the Republicans to surrender? The debt ceiling is a unique clusterfuck because it makes it impossible to keep running fiscal policy according to Congress’ previous compromises, even if a new compromise cannot be reached. I agree it’s a shame if new compromises can’t be reached. But Biden is right that reaching a new compromise is and should be a separate issue from fulfilling the fiscal operations that successful Congressional compromises have already committed the federal government to.

If we breach the debt ceiling, some hit to the confidence voters and financial markets put in the governance of the United States is already built in. You hear a lot of worries about “spooking the markets” with the executive branch-only solutions. But as I said above, financial markets get spooked all the time without the damage bleeding into the real economy. It’s possible this time could be different. But what’s certain is the severe damage we’d do to millions of Americans’ concrete well-being if we go ahead and cut all that spending.

If Biden and Yellen just announce now that they’re going to ignore the debt ceiling or mint the coin and sell bonds at a premium or whatever, then yes, Republicans will totally refuse to budge on the debt ceiling. But then the debt ceiling won’t matter anyway, so why do we care? Meanwhile, debates over future budgets and appropriations will proceed as they always have, for good or ill. So the fact that Democratic Party leadership is united in a desire to back the GOP into a corner feels like an instance “politico brain” to me—forgetting that what actually matters is not the spectacle of humiliating your opponents in the legislature, but what material policy consequences you create for the American people.

Having Congress eliminate the debt ceiling entirely is the ideal solution: This is fundamentally a political problem, created by Congress, and the “cleanest” fix is for Congress to uncreate it. But they may well not. And if the first-best option is for Congress to scuttle the debt ceiling, it’s hard to deny that the second-best option is for the executive branch to just unilaterally neuter it.