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.

 Full Article

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.

 Full Article

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.

 Full Article

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?

 Full Article

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?

 Full Article

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.

 Full Article

February 18th, 2021

François Mitterrand's Austerity Turn

The Rise and Fall of the French Road to Socialism

The history of French socialism is filled with famous and heroic dates: 1789; 1848; 1871 1936; 1968. But less well remembered is another date of great significance: 1981. It was in May of that year that the French left achieved its greatest electoral triumph of the postwar era, with the election of Socialist Party (PS) leader François Mitterrand as President of the Republic. That victory, which came after a quarter century of uninterrupted conservative rule, raised hopes for a new departure in French politics. Mitterrand’s election manifesto, the 110 Propositions for France, embodied the sweeping reform agenda he had promised since ascending to the leadership of the PS a decade earlier, when he memorably capped his speech at the Party’s 1971 Congress with a thunderous call for a “rupture” with capitalism. As head of the PS, Mitterrand’s decision to pursue an electoral agreement with his long-time his rivals from the Communist Party (PCF), which resulted in the 1972 “Common Program,” was both a milestone for the postwar French left, and an important step in his own rise to the Élysée Palace.

Mitterrand’s election in the spring of 1981, and the subsequent triumph of the left in parliamentary elections which followed immediately afterwards, led to the formation of a government under Prime Minister Pierre Mauroy that was more radical than any France had seen since Léon Blum’s Popular Front in 1936. For the first time since the start of the Cold War, Mauroy’s cabinet included four communist ministers.

 Full Article

February 5th, 2021

The Italian Left After Keynesianism

From stagflation to the transformation of Italian left parties

In 1977, Eric Hobsbawm published a book of interviews with Giorgio Napolitano, a leading figure in the Italian Communist Party (PCI)’s gradualist wing, the miglioristi. Hobsbawm proclaimed himself a “spiritual member” of the PCI and intended this book to depict the path it was beating in between Leninism and social democracy. Yet his efforts appeared rather frustrated by Napolitano’s vocabulary. Though calling for the “reconstruction and renewal” of Italian society and insisting on the PCI’s “democratic commitment,” Napolitano did little to convey any clear socialist worldview. As he extolled the “perspective of the continuous, organic, balanced development of the Italian economy” and the “retailoring of [Italian] production for the foreign market,” Hobsbawm interrupted him, as if to draw him back on topic:

Hobsbawm: All this is very useful and positive…
Napolitano: But what does it have to do with the advancement of socialism?
Hobsbawm: That’s exactly what I wanted to ask you.
Napolitano: That’s a question whose answer is less simple than it may seem.

 Full Article

February 4th, 2021

Democracy or the Market

Third wayism and the problem of representation

The problem of democratic representation has always turned on the question of the “have-nots”—that is, not only those without wealth and property, but also those marginalized on the basis of race, ethnicity, gender, origin, religion and education. Even in a world of full-fledged democratic rights, the democratic game tends to break in favor of the “haves.” They enjoy an easy affinity with political elites who are not so different from them, and they experience democratic politics as a hospitable and responsive place. When in doubt, they can back-channel, mobilize proxies and networks, and exchange cultural influence and economic power for political voice, cloaked in the comfort that what’s in their interest is in everyone’s interest. None of this means the powerful always get their way. But it means they operate on the assumption that their way is likely to prevail.

Before democratization, which in both Europe and the United States did not reach its full expression until the turn of the twentieth century, those without power were politically excluded by fiat. Even when some “have-nots” overcame formal exclusion, they had to further overcome efforts, both brazen and subtle, to impede the exercise of their political rights; if they managed to bridge the distance between rights-in-name and rights-in-fact, they still had to muster meaningful representation in a game that was not built for them. The achievement of both rights and representation for the powerless is difficult, rare and fragile—not least because formal rights, once achieved, can be used as a pretense for rendering representation practically meaningless. In this case, democracy becomes form without substance.

Three kinds of institutions were crucial drivers of the fitful, contested, imperfect construction of democratic rights and representation of the powerless between the 1850s and the 1920s: socialist and social democratic culture, mass political parties, and labor movements. Where the three converged, the result was a unique historical organization—the labor-allied mass party of the socialist and social democratic left.

 Full Article

January 28th, 2021

Revolution, Reform, and Resignation

In the 1980s, the left abandoned its language of transformation. Can it be regained?

Some time in 1991 I was invited to give a talk to the Andalusian Confederation of the Spanish Socialist Worker’s Party (PSOE). Afterwards, the secretary of the confederation walked me back to my hotel. I asked him why there was a widespread atmosphere of demoralization within the party. He answered “Nos hicieron hablar un idioma que no era el nuestro”: “They made us speak a language that was not ours.”

Note that the secretary did not evoke the industrial restructuring of the 1980s, which significantly reduced the Party’s industrial working class base. He did not refer to the emergence of television, which reduced the importance of the party machine in mobilizing that base. He did not point to cultural transformations in Spanish society, which rendered new ideological dimensions politically salient. Instead, he identified the root of the party’s transformation in the language by which party leaders were expected to address their supporters, publicly interpret the world, and justify their policies. What was this language that was not “ours”?

 Full Article