Monetary correspondent and podcast host Felix Salmon joins co-hosts VV Ganesananthan and Whitney Terrell to go over the debt ceiling crisis and his new book The Phoenix Economy: Function, Life and Income in the New, Not Regular. Salmon reveals the political and economic ramifications of our existing debt ceiling crisis — and compares the existing impasse to earlier debt ceiling fights.

He also discusses the underappreciated and unexpected financial effects of the COVID pandemic, which includes growing the economic wellness of reduced-earnings Americans and redistributing the population away from huge cities. Salmon reads from The Phoenix Economyand explains how the pandemic will continue to modify our financial lives.

Watch video excerpts from our interviews on the Lit Hub virtual book channel, the Fiction/Non/Fiction YouTube channel, and our web page. This podcast episode was developed and edited by Anne Kniggendorf Hannah Karau.

From the episode:

VV Ganesananthan: I am a huge fan of what you get in touch with “this influx of capital into the functioning class.” It shows that we can influence the financial excellent of life in the reduced earnings classes, if we want to. The query is, do we nonetheless want to do that? Will this continue in any way? The operate specifications that Republicans want for Medicaid go in the precise opposite path, it appears to me.

Felix Salmon: So it definitely depends on how you feel about “we”. A lot of of these discussions feel of “we” as the government, ideal? The government writes checks to the poor and the poor do properly, or the government imposes functioning circumstances on the poor and the poor do much less properly. The poor just sit there as reasonably powerless people in America. They finish up successfully undertaking as excellent or as undesirable as the US government desires them to do, and the energy rests only in Washington.

I feel what we saw throughout the pandemic was an improve not only in the incomes of the poor, but also in the energy of the poor. For the very first time, they identified themselves with negotiating energy. The ratio of labor to capital started to grow to be considerably greater even for the very first time that, additional or much less, every single of us can recall. The poor started to leave their jobs and discover greater paying new jobs. They started to unionize and started to demand greater wages.

And employers started to comprehend that they required to spend persons additional to get them to operate. All of these factors come about outdoors of this query of, “need to the government impose operate specifications on Medicare and stuff?”

So yes, we can have debates about the government. And naturally, what the government does for the poor is really crucial, and poverty reduction applications are essential. But underneath that, what we’ve noticed throughout the pandemic, and I feel this is right here for the foreseeable future, is in fact one thing even additional potent, in a way, which is that we’ve empowered the functioning class to demand greater functioning circumstances and greater spend.

Whitney Terrell: I adore it. I imply, I am a fan of that. It really is a definitely exceptional factor for the reason that it is been a lengthy time given that you have noticed persons becoming capable to bargain for greater wages, at least in my anecdotal memory of the final 20 years. On the other hand, there are some challenges and I wonder how they will have an effect on that portion. In the book, you talked about how particularly low interest prices are, which have now changed more than the final year for the reason that the Federal Reserve has raised prices substantially.

And the other factor I’ve been considering about is immigration. I imply, Trump right away closed the borders applying this law that was connected to the flu and a variety of illnesses, saying you can deny asylum to anybody who may well bring a illness into the United States. They just stopped undertaking it. I wonder if you could speak about these two challenges at that level?

FS: I can comment on the immigration procedure. I feel the very first factor you have to have an understanding of about immigration, and I will comment on interest in a minute, but the factor you have to have an understanding of about immigration is that it is excellent for each labor and capital in a weird way. Naturally, organizations want new persons to do the operate. We presently have a key labor shortage in the United States, which is largely triggered by Covid. A lot of persons died, a lot of persons got lengthy Covid, and a lot of persons just got, you know, that “IOLO. I never like my job and I am going to quit to lie on the beach or start off my personal corporation.”

So we have this extremely low unemployment price that is causing a labor shortage, and immigration would support alleviate some of that labor shortage. But immigration—and this is one thing that economists have definitely studied for decades—at the margin, it does not definitely have a massive influence on wages, it is possibly driving them up rather than down. Immigrants finish up beginning organizations and employing persons and growing the demand for labor and growing the size of the economy. And most vibrant economies have relatively powerful levels of immigration, and the additional immigration America has, historically, the greater its economy has been and the greater its workers have been. So I feel we can be pro-immigration and nonetheless want additional energy for the functioning class. I feel it is simple to hold each of these two tips in your head at the exact same time.

And interest prices are a bit additional exciting. You know, the entire point of the Federal Reserve raising interest prices is to cool demand in the economy they felt the economy was as well hot. They just wanted organizations to slow down a bit and employ fewer persons and attempt to lower labor demand, amongst other factors. It will absolutely show up in decreased demand for workers in the bottom half of the earnings distribution, but a single of the strange factors is that it showed up largely in the top rated half of the earnings distribution at very first.

VT: Yeah, that is what I noticed, computer software engineers get fired.

FS: Just so. The huge layoffs have been at locations like Google, Amazon, and Facebook, ideal? They weren’t in rapidly meals restaurants. So, you know, perhaps that is a way we can lower the demand, by laying off a couple of computer software engineers that make half a million dollars a year, and they are going to have to discover some new job that pays $400,000 a year. It could have the exact same impact.

VVG: This is fascinating. I am curious, and I feel we’ll possibly do a entire separate episode on this later, but I am definitely interested in your thoughts on how this fits in – I’ve been reading all this stuff about efforts in diverse states to loosen youngster labor regulations. Also, of course, there have been revelations about the exploitation of migrant kids for labor. But it appears like they are two separate factors, and this sort of performative work by Republicans to be like, “we want our little ones to operate,” and that is also an try to sort of resolve this labor shortage, that is not immigration. I am just asking yourself what you feel about it and what possible influence, if any, it will have.

FS: Ideal. There are a entire bunch of really, really separate challenges that come collectively right here. One particular is the sort of nostalgic Republican notion like, “I had a paper route when I was a teenager, and it was wonderful for me, and I discovered the energy of the dollar and the energy of challenging operate, and we need to encourage our little ones to get jobs like that.”

That sort of factor plays properly with a particular section of the electorate, and it is entirely unrelated to the other factor that is going on, which is the accurate exploitation of minors who are forced to operate and from time to time not paid at all, who are generally migrants who are generally undocumented, who are generally only completely exploited. And it is, and often has been, and often need to be illegal. In all nations it is not definitely implemented really challenging. But even if you pass laws like we need to permit kids to operate, like the intense exploitation of migrants is one thing that will not be legal and naturally should not be.

WT: Okay, so let’s say we default, let’s say they never agree. Okay. So what would come about? The stock marketplace would crash, I guess. It was down about 19 %, I feel, in 2011 when we got close to it. The bond marketplace would go haywire. Perhaps the US would get yet another S&P downgrade of its debt, which also occurred in 2011 if I recall appropriately. Or perhaps it was an earlier year, you can inform me. Would this definitely have an effect on persons who never have huge stocks and bonds? You pointed out in the book that the forced hibernation of Covid in fact had some rewards, ideal? Is it attainable that debt default and the ensuing financial winter would have some of the exact same rewards? Specially for the functioning class? Are we just undertaking the exact same factor? Oh yeah, we’re finding additional stimulus, everyone’s staying house. It’ll be fine.

FS: Okay. My thesis in the book is that we are in the “new, not the typical” and several unexpected factors are taking place. And we have to be open to crazy, unexpected events. And I guess, in principle, the US government not paying all of a sudden would be excellent, it would be particularly unexpected. I also feel it would be extremely unlikely. There is a lot of doom and gloom about what would come about if we did not spend, for the reason that we definitely have not paid given that 1878.

We definitely never know, so I cannot inform you what would come about. But what I can inform you is that the Treasury bond marketplace is the bedrock on which the complete international economic program rests, and these really steady and predictable money flows in terms of interest payments on Treasury bonds that come from the US government and flow into the complete international economic program is what drives the international economy. Without the need of these flows, anything stops right away. Income is not going exactly where it need to.

Felix Salmon

The Phoenix Economy: Function, Life and Income in the New, Not RegularSlate Income podcast

the second:

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

By Editor

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