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

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

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

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From the episode:

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

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

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

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

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

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

And the opposite factor that I thought of was immigration. I imply, Trump instantly closed the borders utilizing this legislation that was related to influenza and completely different illnesses, saying that you could deny asylum to anybody who could be bringing a illness in america. They only stopped doing that. So I’m wondering, may you speak about these two points at that degree?

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

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

And rates of interest are barely extra fascinating. You realize, the entire level of the Federal Reserve elevating rates of interest is to chill demand within the economic system; they thought that the economic system was working too scorching. They only wished firms to decelerate a bit and rent fewer individuals and attempt to cut back demand for labor, amongst different issues. That can positively present up in lowered demand for staff within the backside half of the earnings distribution, for certain, however one of many bizarre issues is it has proven up, initially, largely within the prime half of the earnings distribution.

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

FS: Precisely. The massive layoffs have been in locations like Google and Amazon and Fb, proper? They haven’t been in quick meals joints. So you understand, possibly that’s the way in which we will cut back demand, by shedding a number of software program engineers making half one million {dollars} a yr, and so they’ll have to search out some new job paying $400,000 a yr. That would have the identical impact.

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

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

That type of factor performs properly with a sure a part of the voters, and it’s fully unrelated to the opposite factor that’s occurring, which is real exploitation of minors who’re being pressured into work and typically not paid in any respect, who are sometimes migrants who are sometimes undocumented, who are sometimes simply being fully exploited. And that’s, and all the time has been, and all the time ought to be unlawful. It’s probably not being enforced tremendous onerous in all states. However even should you go legal guidelines, type of saying we should always permit children to work, like the intense exploitation of migrants is one thing that’s not going to be made authorized and clearly shouldn’t.

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

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

We don’t actually know, so I can’t inform you what would occur. However what I can inform you is that the Treasury Bond market is the bedrock upon which your complete international monetary system sits, and people very steady and predictable money flows when it comes to the curiosity funds on Treasury Bonds coming from the U.S. authorities and flowing into your complete international monetary system is what retains the worldwide economic system shifting. With out these flows, the whole lot grinds to a direct halt. The cash doesn’t go the place it must go.

Felix Salmon

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

Others:

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