June 10th, 2021

Hysteresis & Student Debt

How the Great Recession fueled the student debt crisis

The geographic character of the Great Recession is, at this point, well-known. While everywhere in the United States experienced a sharp increase in unemployment, some areas suffered disproportionate exposure of local employment in harder-hit industries.

The Great Recession is also substantially at fault for the student debt crisis, and the geographic contours of the downturn carry implications for how student debt has subsequently been experienced throughout the country. The number of borrowers and average loan balances were increasing rapidly before the onset of the financial crisis, thanks to the defunding of public university systems following the previous cyclical downturn in the early 2000s. The Great Recession put those trends into overdrive: with fewer jobs available and a more selective labor market, many young people were funneled into a higher education system already in the process of becoming much more dependent on students and their families paying hefty tuition, as opposed to state support. Those who had entered the system seeking credentials to boost their chances in the labor market then graduated (or didn’t graduate) into a labor market still suffering from stagnant wages and disappearing job opportunities. Credentialization cascaded into higher loan balances as a share of income, rising delinquency, and eventually declining repayment rates.

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June 8th, 2021

The Crisis Canal

Trade, bond markets, and the Ever Given

Why did the Ever Given capture our collective imaginations? At the end of its week in the spotlight, the poet Kamran Javadizadeh wrote: “I too am ‘partially refloated,’ I too remain stuck in the Suez Canal.” Two fluorescent yellow-vested construction workers with an excavator—lego-like compared to the gargantuan hulk of the vessel—attempted to wrench the giant ship from the sand bank. Dredgers and tugboats aided by rising tides finally refloated the massive freighter, launching it back on its voyage from Yantian to Rotterdam.

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June 5th, 2021

Phenomenal Works: Laleh Khalili

Decolonizing infrastructure

“What if infrastructure is designed, financed, and adopted into the habits of everyday lives of its users in such a way that it is not a harbinger of apocalypse?” In a recent essay, Laleh Khalili notes a key dilemma of infrastructure projects—in both colonial and postcolonial contexts, and even in the service of revolutionary ideals, infrastructure, a key feature of economic development models, carries destructive environmental impacts. Khalili argues in favor of a conception of infrastructure beyond the bounds of Rostow’s stages of growth, instead looking to projects that are redistributive, participatory, and egalitarian.

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June 2nd, 2021

Risks and Crises

Market makers and risk managers after 2008

In the 1945 film It’s a Wonderful Life, banker protagonist George Bailey (played by Jimmy Stewart) struggles to exchange his well-functioning loans for cash. He lacks convertibility—known as liquidity risk in modern finance—and so cannot pay impatient depositors. Like any traditional financial intermediary, Bailey seeks to transform short-term debts (deposits) into long-term assets (loans). In the eyes of traditional macroeconomics, a run on the bank could be prevented if Bailey had borrowed money from the Fed, and used the bank’s assets as collateral. In the late-nineteenth-century, British journalist Walter Bagehot argued that the Fed acts as a “lender of last resort,” injecting liquidity into the banking system. As long as a bank was perceived solvent, then, its access to the Fed’s credit facilities would be almost guaranteed. In an economy like the one in It's A Wonderful Life, the primary question was whether people could get their money out in the case of a crisis. And for a long time, Bagehot’s rule, “lend freely, against good collateral, but at a high rate,” maintained the Fed’s control over the money market and helped end banking panics and systemic banking crises.

This control evaporated on September 15, 2008, with Lehman Brothers’ collapse. On that day, an enormous spike in interbank lending rates was caused not by a run on a bank, but by the failure of an illiquid securities dealer.

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May 13th, 2021

Investment and Decarbonization: Rating Green Finance

A proposal for a public ratings agency for green finance

The Biden administration has committed the United States to cutting its carbon emissions in half by 2030 and achieving net zero emissions by 2050. The International Renewable Energy Agency (IRENA) estimates that the global transition to a low-carbon future will require \$131 trillion in infrastructure investment by 2050. With the US share of global GDP and carbon emissions around 16 percent, a back-of-the-envelope calculation puts its gross financing needs at roughly \$21 trillion—or 100 percent of GDP over the next three decades. In other words: approximately 3.3 percent of GDP per annum in investment has to be financed to achieve Biden’s commitments. But the aggregate climate-related financing promised by the twin bills introduced by Biden is no more than \$100 billion, or 0.5 percent of GDP per year over the next eight years. How is the rest going to be financed?

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May 6th, 2021

Restructuring Sovereign Debt

An interview with Ken Shadlen

Ken Shadlen's research examines how international institutions can create unique challenges for developing countries and, in doing so exacerbate core-periphery inequalities. Writing on the HIV/AIDS crisis, Shadlen has illustrated how intellectual property rules developed by the World Trade Organization threaten to limit the supply of antiretrovirals, with profound implications for patients in the developing world. In his 2017 book, he finds that countries which had well developed pharmaceutical sectors prior to the WTO’s Agreement on Trade-Related Intellectual Property Rights (TRIPS) did not adopt the sort of maximalist patent regimes that were demanded of less-developed nations. Across his work, Shadlen explores how political blocking and coalition building by developing countries strengthened their influence within the WTO in the late twentieth century.

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April 28th, 2021

Reconstruction Finance

Reconstructing the RFC

Like the world system as a whole, segregated cities in the United States have their own finance driven core-periphery dynamics. The world economy is structured by countries with competitive export sectors and trade surpluses, like Germany and China, who exhibit underconsumption and excess savings; the US's debt-fueled economy receives these savings through its domination of global financial markets. The dynamic strengthens the power of global finance at the expense of wages and living standards. And within the US, the allocation of credit and investment has exacerbated racial disparities and altered the municipal geography of debt. At the level of the city and the financial system, these developments warrant a powerful political response. But what form can that response take?

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April 2nd, 2021

Phenomenal Works: Ho-fung Hung

Revisiting imperialism

Ho-fung Hung investigates the role of economic development in state formation and global power, with a specific focus on China and East Asia. In his 2015 book The China Boom: Why China Will Not Rule the World, he argues that despite predictions that China's growth would fundamentally challenge the prevailing power relations between the East and West, the nation continues to depend on the existing global order—in a system maintained by the interests of Chinese elites. Hung's 2011 book Protest with Chinese Characteristics: Demonstrations, Riots, and Petitions in the Mid-Qing Dynasty examines over one thousand protest actions in China over the 18th and 19th century, looking at the state and market conditions that catalyzed petitions, rallies, riots, market strikes as forms of popular protest, and ultimately challenging the dominant narrative of dissent as tied to Western political thought.

Hung currently serves as the Henry M. and Elizabeth P. Wiesenfeld Professor in Political Economy at the Sociology Department and the Paul H Nitze School of Advanced International Studies of the Johns Hopkins University.

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March 19th, 2021

Party Politics and Social Policy

A conversation between Lena Lavinas, André Singer, and Barbara Weinstein

In the The Takeover of Social Policy by Financialization, Lena Lavinas names the “Brazilian Paradox”: the model of social inclusion implemented by the Workers’ Party under President Lula and President Rousseff promotes a logic of financial inclusion and market incorporation, and has ultimately contributed to mass indebtedness among the Brazilian population. André Singer assesses this period of social policy expansion as an attempt to reach the “Rooseveltian dream”—a political project that ended with the impeachment of President Rousseff in 2016 and the election of President Bolsonaro in 2018.

On January 25, Lena Lavinas, André Singer, and Barbara Weinstein, historian and author of For Social Peace in Brazil, gathered to discuss this period of mass social inclusion and its unraveling in political scandal and a lurch to the right. A recording of the conversation can be watched here. The transcript was edited for length and clarity.

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February 20th, 2021

Transitions

On Spain's transition from dictatorship to constitutional monarchy

It’s been some time since the term “transition” was fully incorporated into day-to-day usage in contemporary Spanish. It refers to the process of political change that began during the second half of the 1970s, a process which transformed Spain from the Franco dictatorship to the parliamentary monarchy that governs the country today. The term was coined in the midst of the dictatorship, as if in its invocation it could foreshadow the horizon of its disintegration. It succeeded in connoting the way in which one regime gave way to another—not a violent cut, nor a democratic breakdown in the strict sense. Instead, it was a process negotiated by the leaders who had inherited the state apparatus of the dictatorship, and the leaders of the parties of the democratic opposition. While the first aimed to assert the weight, however trivial, of an obsolete and precarious power structure, the second aimed to channel the democratic impulse of a significant section of Spanish society.

That latter section was composed of men and women who resisted through illegal parties and organized social movements (worker’s movements, neighborhood associations, student unions, and feminist groups) capable of breaking the public order and revealing, between the cracks of the regime, the new alternatives. In their day to day, they developed forms of political participation, experimentation, and cultural innovation which themselves detracted from Franco’s hold on the popular imagination. In many ways, these early experiences were much more profound than the institutional restructuring later termed the transition. From this angle, the transition can be understood as a sfumato, that is to say, not only the fading of dictatorship into democracy, but as a sum of experiential layers each contributing to its atmosphere and offering a depth that we’ve yet to fully grasp.The interviews with Felipe González, Begoña San Jose, and Héctor Maravall contained in this book capture the texture of this historical moment.

On the other side of this politically active reality stood another very diverse and wide sector of society, predisposed to the consensus they were socialized into under Francoism. They were motivated by a timid desire for change, as well as by a deep fear of its consequences. Under- standing the Spanish transition requires gaining an awareness of these inherited social habits which were highly structured by authoritarianism, and the survival of its repressive legal, bureaucratic, and media institutions. It also requires acknowledging an international framework in which any action on the margin of society was limited by the areas of political influence that defined the Cold War period.

But understanding the transition also requires capturing that organic crisis in existing relations of power, the intuitive and automatic social responses which enhanced the appeal of new cultural attitudes and expanded the scope for political action. The much cited phrase of Manuel Vázquez Montalbán—which explains the negotiations behind the changing regime as “an alignment of weaknesses”—is useful if we recognize that, in moments of crisis, any alignment of forces is unstable and fragile. Understood through its underlying estatism, “an alignment of weaknesses” is a declaration that the transition happened in the only way that it could have. It’s an argument in which the real is transformed into the rational, the rational into the optimal, and the optimal into the venerable. But we know that narratives of the past tend to perform this argumentative transposition in the opposite direction: it is from the veneration of the present that earlier events are arranged in a way that inevitably leads towards some determined destiny.

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