** Robin's Book Report #72 A reading list by Robin Kaiser-Schatzlein ------------------------------------------------------------ Agenda -Letter about Minneapolis -Letters from readers -The Economic Situation (States on the brink, why PPP went wrong, and worse case scenario) -Reading list Letter From Me: Hello everyone, A brief note about Minneapolis, mainly because I grew up in St. Paul and lived in Minneapolis in my late teens and my family still lives there. (They are okay, though one relative lives blocks from the Third Precinct and was kept up all night by the sounds of helicopters and tear gas canisters exploding.) As a kid, I would not have been able to describe the Twin Cities as a place with a race problem. Which I realize now, as I tweeted about, is part of the problem. However, when I was 18 and 19 I worked summers at a community arts organization in North Minneapolis (a historically black neighborhood), and it was there that I first encountered the issue. My first couple days in North, I was shocked by the police presence. It was unlike anything I had experienced anywhere else in the city, and the neighborhood itself was tense, all the time. There were cops in flak jackets and beefy, military-looking cars everywhere, all the time. Every day I saw someone in the neighborhood being arrested or hassled on Broadway Ave. I later learned that years of de facto redlining and racial covenants throughout the 20th century had brilliantly segregated the metropolitan area, herding blacks and other groups into particular neighborhoods like North Minneapolis and displacing and destroying communities––like the Rondo neighborhood in St. Paul––to build interstate highways. I call the segregation brilliant because it worked well to maintain racism invisibly. It made it extremely difficult to know what was going on in other communities. South Minneapolis, where George Floyd was killed last week, is much more diverse, and I think that contributes to the huge upswell of anger: a multiracial, multiclass community aware of the implications of police brutality and ready to express their anger. I’m trying to retweet reputable sources on Twitter in order to spread useful information. What I know of South Minneapolis, and Minneapolis in general, is that it has strong community organizations and strong community ties. Many organizations like the transit union and the University of Minnesota have cut ties with the Minneapolis Police Department, which indicates how deep the community feeling is about anti-racism and police brutality. They can't support the violent, racist, and lawless right-wing paramilitary organization that is immune to reform. I can’t either. Police use violence and the implicit threat of violence to maintain our racist hierarchy and are an obstacle to justice. The Minnesota Freedom Fund (https://minnesotafreedomfund.org/) appears to be overwhelmed with donations, but I am including some links to other organizations that could use your money like the North Star Health Collective. Please let me know if there are other groups that could use funding and I’ll include that in a next letter. -Black Visions (https://secure.everyaction.com/4omQDAR0oUiUagTu0EG-Ig2) -Reclaim the Block (https://secure.everyaction.com/zae4prEeKESHBy0MKXTIcQ2) -Northstar Health Collective (https://www.northstarhealthcollective.org/donate) -Reclaim the Block recommends (https://docs.google.com/document/d/1yLWGTQIe3967hdc9RSxBq5s6KKZHe-3_mWp5oemd7OA/preview?pru=AAABcpEJhC8*b0xqB3vPmb7ALy6DsjLrNw) a few other groups Here are some others I found: -MN Healing Justice Network (https://paypal.me/spiralcollective?fbclid=IwAR3XFW9E1uNOgF8lKBlrUq2jgJVxpa2upgR_CWXoyhgFphhXavOxi2213iA) / Spiral Collective (https://t.co/YMBltxvvwz?amp=1) -Twin Cities Recovery Project (https://twincitiesrecoveryproject.org) (https://t.co/9TlXS3K3Gz?amp=1) -Women for Political Change Frontline Fund (https://secure.everyaction.com/fxrNs65SYEiFw5) In Brooklyn: Brooklyn Community Bail Fund (https://brooklynbailfund.org/) Free the All for Public Health (https://freethemall4publichealth.org) (https://freethemall4publichealth.org/) Equality for Flatbush (http://www.equalityforflatbush.org/) Letters from You Oshan on how money is made: I've really enjoyed receiving your newsletter over the past few months - I love the mixture of a literary sense and economics. I always wonder what it might've been like if Annie Dillard wrote about econ. Anyway, I'm hoping you might help clear up an economic confusion for me. You commented that the current paradigm is one where government creates money, and the only way it can inject it into the economy is by making it available to banks who give it out via loans. I'm having trouble reconciling this with the idea that banks don't lend existing money - their loans actually create the money (as summarized in David Graeber's article,Against Economics (https://www.nybooks.com/articles/2019/12/05/against-economics/) ). Are these both occurring simultaneously? Banks lending out money the government makes available to them, and creating money via loans? Any clarification here would be much appreciated! Your recommendation sounds as sane as can be, that we should establish channels to get money directly to people, rather than using bank loans as intermediaries. I've been researching &writing (https://musingmind.org/essays/ubi-capitalist-consciousness) a lot about the various forms of basic income (NIT (https://musingmind.org/essays/negative-income-tax-proposal) , UBI, social dividends, etc), which seems like another viable, simple channel for doing so (not conceived as a panacea, but accompaniment to things like healthcare, codetermination, etc). Cheers Me: You are so correct about how money is made, and banks’ role in creating it. I'm glad you brought that up. The short answer is, yes, banks create money but they are not the only avenue. There are many different avenues to get money into society. That is, money is transferred from its creator (in this case, the government) in myriad ways. One way that money is created is by lending it to the Federal Reserve, a private bank, who then lends it to other banks. Theoretically, this allows the Federal Reserve to control the money supply, but this process isn't as simple as it sounds and the Federal Reserve has less control over the money supply than you'd think. Which brings us to the fact that David Graeber is right, private banks issue funds and that creates money, and it isn't totally dependent on the government or anything really. However, banks are required to keep a certain amount of money on hold, against their loans, which theoretically constrains their lending (called reserves). We have to stress *theoretically* here because, as Graeber says, it's a messy system. That being said! Another way that money can get into society, is through unemployment benefits, food stamps, other spending programs, etc. Banks are not the only avenue, though for the last fifty years, the denigration of the welfare state has been premised on the neoliberal idea that expanding credit through banking is a better way to distribute money than government spending. The result has been clear: relying on the banking sector to originate money leads to wealthy people getting more of it. If we constrained and controlled banking like a public utility, it would make it necessary to get money to the public through other channels and not rely on banking. Also, if banking was publicly controlled, lending to specific, underserved communities would be a direct way to distribute money. I have almost zero faith in this method, expanding credit often backfires, but it's an option. I hope that makes sense. UBI would be a good way to distribute resources initially instead of lending to businesses who then decide how much to pay their employees. When you look at it this way, it is clear that employment is a privatized universal income, the application of which is left up to the whims of employers. If you combined UBI with a jobs guarantee, it would make a floor on incomes and loosen the grip of private employers on the decisions of who gets what and when. Richard on estate taxes: As usual, this is very interesting. Piketty’s proposal for temporary ownership of property brings to mind, for me, US tax policy on estate taxes or “death taxes.” Generally and historically, the US and the states have taxed the estate of a deceased person quite heavily. This doesn’t raise very much money for the US Treasury, so the question is, why do we tax a person’s estate? The answer, I think, can be found in the spirit of the US Constitution. Americans did not want a king and placed limits on a president’s powers through checks and balances, equal branches of goverment. In the same spirit, Americans reject a hereditary aristocracy: the passage of wealth and titles down through families for long periods of time. The purpose of the estate tax is to prevent the establishment of a hereditary aristocracy in America. Now, however, the US has a growing oligarchy of wealthy individuals who avoid estate taxes through “generational trusts” and other tax avoidance maneuvers, thereby creating the conditions for a hereditary aristocracy except for the titles. (Ever since the 19th century, wealthy Americans have been buying titles by marrying into English and French noble families.) If a wealthy family doesn’t protect itself from estate taxes, the estate tax (federal plus state) can run up to 65% of the estate of a deceased person. This is, in effect, a government policy creating temporary ownership of 65% of a person’s lifetime accumulation of wealth. The estate tax could be made higher. The loopholes could be closed. And an estate can be free of taxes if it is donated charitably. Naturally the rich and powerful do all in their power to prevent and undermine estate taxes. Curiously, polls of working class people find that that group is also strongly opposed to estate taxes. But I think most Americans agree that we do not want a hereditary upper class. [A very interesting addendum he added] When Japanese diplomats visited Washington for the first time (after Commodore Matthew Perry had visited Japan in 1854 and opened that country to the outside world), the diplomats asked to meet the descendents of George Washington. They were shocked to learn that nobody seemed to know, or even care, what had happened to George Washington’s descendants. The diplomats had assumed that Washington’s family would be at the top of the American political and economic hierarchy, as would be the case in Japan. Americans just had no belief that Washington’s family bloodline would be special in any way. Likely the opposite: the American attitude would be ‘those Washingtons are probably a bunch of half-wits compared to George.' Me: Good point about the estate tax. Two things I am thinking. First, Piketty does talk about the estate tax and I wasn't able to cover it in my review. It is a good example of temporary ownership, one that we already have on the books, and is evidence that temporary ownership is doable and desirable. I can't remember the details of current status of estate taxes, but I agree I don't think US citizens want a hereditary overclass. However, Piketty's concern at the end of his first book was about the fortunes of the superwealthy and how immense they will grow by the time they get to the next generation. Even 35% of Jeff Bezos’s fortune would be a tremendous amount of money. The second thing that makes me think of (that I didn't get a chance to write about) is that taxes have many functions beyond raising money. (Many people theorize that they don't raise money at all.) Taxes set norms about what is appropriate behavior, kind of like speed limits, and they also work to constrain spending, when inflation is ticking upwards. I have my doubts about the efficacy of taxation to fund government spending, and think it is a losing framework that was introduced by right-leaning thinkers in the late 1960s. To me, the government should spend directly on the programs that help the people who need it, which is an active role in public life that the current administration is going the opposite direction from. David on the silent majority of reopening: What's interesting to me about that argument from Noonan is what you said is that there is no popular mandate behind "going back to work". Yet, watching and listening to media there is almost no voice given to this majority opinion. Instead the media just centers on outliers who want things to re-open and this broadcast the voices of election officials that are ever creeping in their desire for that shared outcome. For all of the chatter/projection on the left about mistrust of institutions and the "media", this feels far more gross than ignoring Bernie or giving a pass to Biden. Cause that is the kind of politics one should expect of corporate media AND I guess in theory this also falls within a similar boundary. Yet, it's still so bizarre to follow-up the news and never really hear the opinion of the vast majority of people on a topic of life or death matters. Then because of that lack of voice you can get this bizarre conservative reaction to try and frame that those who want to help people are bad and "people" want to go back to work even without any proof. Just absolutely mindnumbing. Me: You’re right, there is very little coverage of people who are happy to shelter in place. ============================================================ The Economic Situation -If states aren’t bailed out, unemployment (and many other things) could get worse after July 1st. Many state and city budgets are due July 1st, and many budgets, without federal loans, are extremely short. The public health crisis caused a surge in unexpected spending and few investors are excited to buy the municipal bonds that would shore up these accounts. This means that there could be a wave of public sector layoffs beginning this summer. As I have mentioned before, the federal government hasn’t saved the states yet and in some cases has encouraged states to go bankrupt. Already ** New Jersey announced (https://www.nj.com/coronavirus/2020/05/plan-to-partially-furlough-100k-nj-public-workers-wins-big-in-legislature-its-up-to-murphy.html) their plan to furlough 100,000 public workers. ** Michigan said they are considering axing (https://www.detroitnews.com/story/news/local/michigan/2020/05/13/michigan-plans-furlough-64-percent-workforce-save-80-m/5182528002/) 64 percent of their workforce in order to save $80 million dollars. (However, they are not laying off any police, prison, or veterans homes workers.) Michigan is saying they are going to experience a $3 billion dollar shortfall. It’s a big hole to fill in. The budget deadline of July 1st is why many are saying that we have “** weeks, not months (https://prospect.org/coronavirus/unsanitized-few-weeks-to-stop-a-depression/) ” to stave off a huge downturn that could be much deeper than the Great Recession. As David Dayen writes, “Congress doesn’t have time to see what will happen with the economy. If they don’t backstop state and local spending we will have a depression. Period.” The big problem with furloughing workers is that it creates a downward spiral: these workers stop spending as they normally do, which causes businesses to lose income, which causes states to lose tax income, which causes more layoffs. To a large degree, the Federal Reserve could prevent this downward spiral by directly buying state and municipal bonds, or at least guaranteeing their sale. Worse, these states and cities just got done filling in the hole created by the last recession. As the ** Wall Street Journal recently found (https://www.wsj.com/articles/state-and-local-budget-woes-create-drag-for-economic-recovery-prospects-11590312600) , “State and local government spending and employment levels didn’t fully recover from the 2007-09 recession until last fall, a decade after the downturn ended and only a few months before the coronavirus led to a new round of cuts.” State employees make up 11 percent of GDP spending, which means failing to help them will cripple the consumer economy as a whole. -The Creaky, Underfunded, and Abused Small Business Administration Was Tasked With Preventing Mass Bankruptcies and Unemployment. You Won’t Believe What Happens Next. All the problems I have previously explored about the PPP program are laid out here, in this ** article about the Small Business Administration by Alexander Sammon (https://prospect.org/coronavirus/everybody-hates-the-sba/) . As I have said, there was no reason why the PPP loans needed to be routed through the SBA, they could have been offered by the Federal Reserve like all the corporate bail outs were. But they weren’t. Which makes me very suspicious as to the motives of the lawmakers who designed the program that way, because everyone in Washington knows the SBA is an abused, defunded, and neglected agency that has been largely stripped of its original powers and is often ineffective. Sammon finds that: “It wasn’t a foregone conclusion that the SBA would head up this program. For many, it made more sense to have the Treasury, which is better staffed, more capable, and already in possession of the relevant documentation through the IRS, do such a task. But Congress tapped the SBA, an agency with just 4,000 employees. If there’s any bureaucratic muscle left in the atrophied Trump administration, the SBA isn’t it. ... Born as an anti-monopoly tool, the SBA became as ineffective as the rest of the federal government to prevent the Second Gilded Age. ... In a cruel twist of fate, the PPP’s structure has resulted in the SBA presiding over a massive racial wealth transfer away from minority small-business owners. According to the Center for Responsible Lending, a galling 90 percent of women and minority business owners were shut out of the first round of the program, including 95 percent of black-owned businesses, 91 percent of Latino-owned businesses, and 91 percent of Native Hawaiian or Pacific Islander–owned businesses.” The problem is that the SBA should have had the powers to lend directly to businesses, instead of relying on private banks to do the lending for them. “The government should,” Sammon writes, “staff the SBA the way that the Home Owners Loan Corporation was staffed during the New Deal, directly issuing loans out of a government office. The SBA should have an active representative within the next president’s Cabinet.” Good idea. -What Is The Worst Case Scenario For The Global Economy? It’s important to reflect on what the worst case scenarios for the global economy are, because we need to assess how plausible they sound. In an interview with New York Magazine, the economist Nouriel Roubini ** laid out possibly the bleakest projection (https://nymag.com/intelligencer/2020/05/why-the-economy-is-headed-for-a-post-coronavirus-depression-nouriel-roubini.html) I have seen yet. I have to say up front that I don’t totally buy it. A large part of his analysis rests on the effects of skyrocketing government spending, which are way way overstated. It is unlikely that it will cause runaway inflation. Government debt was very high after World War II and this didn’t lead to inflation or slow growth. Roubini sees the rise of huge pools of private debt as being dangerous, or as the interviewer, Eric Levitz, writes, “specifically, Roubini argues that the massive private debts accrued during both the 2008 crash and COVID-19 crisis will durably depress consumption and weaken the short-lived recovery.” This, I believe is true. Private debt is dangerous, public debt... not yet. However, Roubini notes that the oncoming cold war with China could be a big problem for working people. If it leads to a “reshoring” of jobs, the products coming out of American factories would likely be more expensive, but without strong unions, the workers won’t necessarily be paid more. The global economy is in an extreme level of flux right now, partially because of the pandemic and partially because of existing geopolitical problems. There are a lot of open questions right now in the global economy. ** Adam Tooze argues (https://www.lrb.co.uk/the-paper/v42/n08/adam-tooze/shockwave) that the pandemic has exposed three pre-existing problems for the global economy: that China fueled its growth with cheap debt and now has a dangerous credit bubble; that the EU has a “rickety banking system” that can’t solve individual country’s problems; and that the US is quietly running the global economy through the Federal Reserve and yet is politically volatile. If you are curious about what might become of the geopolitical system after the pandemic abates, this is an important article to read. Reading list “** Newport, R.I. 1878 (https://www.loc.gov/item/75696563/) ” Galt and Hoy (Library of Congress) An incredible birds eye view map of Newport. “** Always Leave Them Wanting Less (https://harpers.org/archive/2020/06/always-leave-them-wanting-less-andy-warhol/) ” How not to write about Andy Warhol By Gary Indiana (Harpers) What is left to say about Andy Warhol? A new book by Blake Gopnik tries and fails to find anything. “A prodigy of research,” Indiana writes, 'Gopnik claims to have interviewed 'more than 260 lovers, friends, colleagues and acquaintances of the artist' (261? 263?), and consulted 'some 100,000 period documents.' None of this effort has produced anything resembling a fresh idea.” Another great quote, non sequitur: “It may come as news to young people that many different kinds of pharmaceutical speed were easily available in the Sixties, all of them more fun than Adderall.” “** A Philosopher-Banker Who’s Shaking Up a Nation (https://nyti.ms/2LnpJkh) ” Steven Coutinho had long wanted to help Suriname, his homeland, overcome its colonial past. A huge financial scandal gave him his chance. By Anatoly Kurmanaev (New York Times) The huge financial scandal was that the ruler of Suriname recently pillaged the public’s bank accounts to buy potatoes and onions for the country. “** Introducing Eventide™ Single Adventures” (https://thebaffler.com/sadvertorials/introducing-eventide-single-adventures-dickinson) Even in our age of total digital connection, it isn’t always easy to meet the future Mr. or Mrs. by Kelly Dickinson (The Baffler) Satire about dating after the fall. “I** Want to Go Ahead and Do It (https://archive.nytimes.com/www.nytimes.com/books/97/05/04/reviews/mailer-song.html) ” By Joan Didion (NYT Book Review) 1979 Didion reviews The Executioner's Song By Norman Mailer, a book about the last months of a murderer before he is executed in Utah. “The very subject of "The Executioner's Song",” she writes, “is that vast emptiness at the center of the Western experience, a nihilism antithetical not only to literature but to most other forms of human endeavor, a dread so close to zero that human voices fadeout, trail off, like skywriting.” Thanks for reading!