How wealthy Americans and corporations have used ‘negative freedom’ to strip rights away from workers

Fastfood workers
Overly promoting freedom of corporations can cause decreases to workers’ rights.

  • Paul Constant is a writer at Civic Ventures and cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In the latest episode, they interviewed Mike Konczal, director of progressive thought at the Roosevelt Institute.
  • Konczal says allowing employers freedom to infringe on workers’ rights creates a dangerous economic imbalance.
  • See more stories on Insider’s business page.

The best brief definition of the limits of American freedom is a very old line that’s often misattributed to Abraham Lincoln: “My freedom to swing my fists ends where your nose begins.”

In other words, you can do what you want in America as long as you’re not hurting anyone. So far as rules of thumb go, it’s an elegant one.

And it also serves as a simple illustration of a difficult truth that isn’t often acknowledged in American politics: Freedom is never a zero-sum game.

Since Franklin Delano Roosevelt’s presidency, for example, we’ve established a minimum wage that (most) employers have had to pay. For workers, the minimum wage is an essential freedom to be protected, because it ensures that if they work a full week, they can afford the basic necessities. But for certain vulture capitalists, the minimum wage is a freedom-killing constraint to be derided and overturned. From their perspective, the minimum wage is impeding on their freedom to fatten profit margins by paying starvation wages.

Freedom in the workplace

Freedom isn’t handed down in pure form by some omniscient higher power. It’s determined by legislators, enforced by courts, and influenced by popular opinion. Like most human institutions, the decision of who enjoys more freedom is often rigged toward the most powerful. The last 40 years of outsized corporate influence has marched to the drumbeat of anti-worker laws that restrict the rights of workers to unionize and to keep their home life private. In general, the more freedoms your employers enjoy, the fewer freedoms you enjoy in your workplace.

This week’s episode of “Pitchfork Economics” features an interview with Mike Konczal, the director of progressive thought at the Roosevelt Institute. Konczal’s new book, “Freedom from the Market: America’s Fight to Liberate Itself from the Grip of the Invisible Hand,” is about the junction between economics and freedom, and how to reclaim some of the freedoms that American workers briefly captured in the middle of the 20th century.

Konczal says the concept of trickle-down economics that ruled over American politics since the 1980s has been informed by the concept of prioritizing negative freedoms over positive freedoms. “Negative freedom is the idea of freedom from the government, and the idea that the government can’t stop you from doing the things you want,” he explained, whereas “positive freedom is associated with a freedom to – a freedom to be able to get health care, or get a good education.”

‘Pro-freedom’ and anti-government

For too long, leaders on the left and right have bought into the libertarian concept that a government’s primary role in protecting freedoms should be to limit government’s power wherever possible. This anti-government stance is the reason why, for instance, the “pro-freedom” argument over the 2nd Amendment has long been to argue for the freedom of those who own the guns, when gun safety advocates could just as logically argue that the freedom of the individual to go to school or participate in public events without fear of being killed in a mass shooting should take precedence.

The popular discourse has for decades been so absorbed with negative freedoms that benefit corporations, Konczal says, that we’ve forgotten to prioritize our individual positive freedoms.

“Is the government making us more or less free with the way the economy is structured?” he said. “I think it’s increasingly less free in the past decades.”

Worker versus employer freedoms

Konczal says the recent debate over secure scheduling laws, which require employers to post employee schedules in advance and pay workers extra for shifts added or canceled at the last minute, are a good example of a positive freedom. Some workers, he said, “don’t start their weeks knowing the hours they’re going to work over the next week.”

If employers aren’t required to tell workers when they will and won’t be working, Konczal asked, “how do you build a robust social life with that kind of stress?” Without the freedom to plan even one day ahead, “it’s tough to start and maintain a family, or to volunteer, or join a bowling league – all the things that we think of as having a rich social life,” he explained.

Once you understand that worker freedoms have been trampled over the last 40 years, you start to see examples everywhere. Consider the Jimmy John workers who were forced to sign agreements that said they couldn’t go to work for another fast food restaurant if they quit, or the janitors who unwittingly signed noncompete clauses. Think of how many people feel trapped in their jobs because they can’t afford to give up the health insurance their employers provide. Can anyone really make the argument that these workers are anywhere near as free as their counterparts in nations with single-payer health care and stronger worker protections?

The economic power imbalance

In order to reestablish freedoms that benefit the individual, Konczal argued that “we need to decommodify spheres of our lives.” A public health care system and free public college would establish a baseline in which everyone has the freedom to pursue the life that they want, and worker protections would allow people to live balanced lives.

And lastly, “we need to do something about the real disparities of wealth and income in this country through very aggressive progressive taxation,” Konczal said.

Freedom can’t exist in a country with the kind of economic power imbalance that exists in America today. Your freedom to swing big bags of money around ends when your fortune risks crushing the livelihoods of millions of working Americans.

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Andrew Yang on which would more broadly help the most Americans: universal basic income or higher wages

Andrew Yang
Andrew Yang rides the Staten Island Ferry on February 26 in New York City.

Most progressives – really, most Americans – agree that income inequality is a tremendous problem. For over 40 years, the vast majority of profits have gone to the wealthiest 10% of the economy, and a gigantic portion of those gains have been scooped up by the wealthiest .01 percent. The $50 trillion dollars that used to go to the American working class has now been leveraged to a fraction of the population, and that disparity is now obvious to everyone.

In this case, though, identifying the problem is the easy part. A lot of very smart people have many different ideas about how to alleviate income inequality, and many of these ideas aren’t compatible with one another. So decisions will have to be made about how to get that money back in the pockets of ordinary Americans.

For Nick Hanauer, the host of the “Pitchfork Economics” podcast, the first step to address income inequality was easy. In Washington state, Hanauer became one of the leading voices in the Fight for $15, which called for a $15 minimum wage. Now that it’s been endorsed by almost every single high-profile Democratic politician, $15 seems obvious, though Forbes in 2013 characterized it as a “near insane” proposition.

In the latest episode of “Pitchfork Economics,” Hanauer describes those early days of the Fight for $15 to former presidential candidate and current New York City mayoral candidate Andrew Yang. And Yang is in agreement with Hanauer’s assessment that raising the minimum wage is good for the economy.

“Just about everything out of your mouth, I’ve always agreed with,” Yang told Hanauer. “But I think you would agree with me, particularly during this pandemic, that the extremity [of America’s income inequality] is accelerating and getting worse.”

Yang’s approach to fixing the economy

The entrepreneur and New York City mayoral candidate is perhaps the most high-profile proponent of the universal basic income (UBI), in which the government would send every American a check that they could then spend however they wish.

Andrew Yang
Andrew Yang.

“If I had a choice between something like universal basic income and a higher minimum wage, I would choose universal basic income,” Yang said. “But if I don’t get universal basic income, then I’m all for raising the minimum wage.”

“I’m on exactly the other side of that trade,” Hanauer said. “I really do believe in capitalism. I do believe that it is a great economic system – the best ever devised.” At the same time, Hanauer rejects the idea that “the whole system will come tumbling down if companies are required to pay their workers enough to live in dignity without food stamps.”

Yang told Hanauer that when he considered getting into public life, “I looked at the political possibility of changing the labor standards along the way you suggest.”

Universal basic income versus a higher minimum wage

Yang believes that the idea of a UBI is simpler and more suited to the modern world than reforming and updating the suite of labor standards instituted in the first half of the 20th century. He considers automation to be the leading problem for American workers in the 21st century, and believes that a significant portion of the American workforce will be made obsolete once technologies like self-driving cars and trucks finally mature.

If Yang’s dire prediction is correct, and millions of Americans are forced out of work and essentially considered useless to the labor force, a UBI might be better-suited to solve that crisis.

Nick Hanauer 100 list

Hanauer, however, believes that the coming wave of automation is not significantly different than the uncountable waves of automation that workers have lived through since the dawn of civilization. The invention of assembly lines, industrial farming equipment, and personal computing caused disruption in their fields that temporarily put people out of work, but all three technologies created jobs in the long run.

Hanauer believes that the real battle is to make sure that the newly created jobs pay enough that workers can afford to fully participate in the economy, because their consumer demand is what creates more jobs.

A meaningful path forward

The problem with internal debates among progressives is that there is no one right answer, and that these economic ideas are largely exclusive of each other – no politician that I know of is simultaneously calling for expanding the minimum wage and also establishing a regular series of UBI payments for all Americans.

The path forward can only be found through good-faith, informed debates like this, deliberating what action is possible, which outcomes are preferable, and who is persuadable. The debates of today are the crucibles that shape the policy of tomorrow.

Read the original article on Business Insider

The pandemic completely unraveled the libertarian ideal of individualism in Ayn Rand’s ‘Atlas Shrugged’

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A member of the National Guard reading “Atlas Shrugged” in the Capitol as the House debated impeachment against President Trump in January 2021.

  • Paul Constant is a writer at Civic Ventures and cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In the latest episode, they spoke with evolutionist David Sloan Wilson about his novel, “Atlas Hugged.”
  • Wilson says the pandemic has unraveled the Ayn Rand philosophy that self-interest should trump societal needs.
  • See more stories on Insider’s business page.

Like a lot of white males, I read Ayn Rand’s bestselling novel “Atlas Shrugged” when I was 18. And like a lot of white males, “Atlas Shrugged” turned me into a huge jerk for a couple of months.

“Atlas Shrugged,” which was published in 1959 and came in second only after The Bible in a Library of Congress survey of influential books, is a 1,200-page sci-fi novel about what would happen if all the “makers” in the world were to go on strike. The mysterious hero of the book, John Galt, encourages captains of industry, inventors, and other heroes of capitalism to join him in a secret utopia hidden in Colorado called Galt’s Gulch. The rest of the world – populated only by collectivists, politicians, and other assorted “takers” – quickly begins to fall apart without them.

“Atlas Shrugged” serves as a page-turning enticement to Ayn Rand’s philosophy, Objectivism, which is based on the idea that selfishness should be the guiding virtue for all mankind. (If you think I’m overstating or mischaracterizing her message, please note that Rand literally published a non-fiction book titled “The Virtue of Selfishness.”)

Self-interest, Rand argues, is the best motivation for economics, finance, politics, and basically all of humanity’s pursuits. Putting others first, she argues, means that everyone finishes last.

The appeal of selfishness

Rand’s simplistic Objectivist worldview couldn’t be better designed to appeal to sheltered middle-and-upper-class suburban white boys like me – the kind of people who, in the immortal words of Barry Switzer, were born on third base and thought they hit a triple.

For kids like me at the time, Rand’s message that we earned every piece of wealth that we inherited was a comforting one, and it pleased our egos by centering us as masters of the universe who deserved our elevated perch.

Thankfully, it didn’t take me too long to shake off the themes of “Atlas Shrugged.” As soon as I befriended people who were not suburban white dudes, and once I understood that they had to work five times as hard to enjoy half of the privilege that I enjoyed, I realized that Rand was singing a heroic ode to the comfortable. With the application of a little bit of empathy and life experience, her philosophy fell apart.

But plenty of powerful adults still subscribe to Rand’s philosophy. Former Speaker of the House Paul Ryan has spoken often, and lovingly, about the impact Rand had on his life. Former Fed Chair Alan Greenspan was a Randian acolyte, along with both Ron and Rand Paul. Some of Silicon Valley’s most powerful players, including Peter Thiel and Travis Kalanick, have praised Rand.

Her writing to this day informs a particularly virulent form of conservative thought – fiercely libertarian, aggressively anti-government, blindly in favor of handing power to corporations.

In this week’s episode of “Pitchfork Economics,” Nick Hanauer and David Goldstein talk with celebrated evolutionist David Sloan Wilson about his debut novel, “Atlas Hugged.” “Hugged” rebuts the claims of Shrugged using Sloan’s unparalleled understanding of evolutionary biology, which reframes humans as cooperative and community-minded animals and not mono-maniacally selfish actors.

Self-interest versus the pandemic

And for a ripped-from-the-headlines example of why humans are absolutely not the sociopathic strivers of Rand’s fiction, look no further than the pandemic. How would Galt’s Gulch have responded last year when COVID-19 arrived?

To begin with, none of Rand’s rugged individualist protagonists would abide by a mask mandate. They loathe government regulations of all types, and since mask-wearing protects other people as much as it does the person wearing the mask, it violates Rand’s primary directive of selfishness above all else. The same goes for six-foot social distancing rules.

So already, Galt’s Gulch looks like a petri dish for coronavirus. Rand envisioned her utopia as a haven for CEOs and presidents of big manufacturing firms, and the average age of CEOs in America has climbed in recent years to just under 60 years old. Given that 95% of all coronavirus deaths have been in people over 60 years old, the survival rate for Galt’s Gulch isn’t looking great.

I hear the protests now: “But surely these unfettered capitalists would be able to buy or manufacture ventilators to keep those infected CEOs alive?” Probably not.

If you recall, ventilators were in high demand in the early days of the pandemic, and then-President Trump had to use powers of government to force General Motors to manufacture them – a gross violation of Rand’s philosophy.

And the global supply chain was completely broken in those early days, meaning all the money in the world couldn’t get ventilators or the parts to manufacture ventilators to Galt’s Gulch in time to save those poor sickened Objectivists.

Then consider the fact that Galt’s Gulch likely has no public health department to inform the populace about at-risk behaviors and demographics, no way to direct private business in ways that benefit the public good without massive price-gouging, and no tax dollars to support people who lose their jobs because of the pandemic, and John Galt’s utopia is starting to look a lot like “The Hunger Games.”

The science fiction of individualism

There’s a reason why libertarians have been so quiet since COVID arrived on our shores a year ago, and why Republican hyper-conservatives were bleating about Dr. Seuss when Democrats were passing an incredibly popular pandemic relief package.

The pandemic is proof of the single inescapable fact that destroys Ayn Rand’s philosophy: We live in a society, and nobody is truly a self-made master of their own destiny. The sooner we understand the American ideal of sovereign individualism is the stuff of science-fiction, the faster we can get to work building a world that’s better for everyone.

Read the original article on Business Insider

The GameStop saga didn’t revolutionize the stock market – it just proved how out of touch Wall Street has become for the average American

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GameStop’s stock prices have been erratic since the January squeeze.

  • Paul Constant is a writer at Civic Ventures and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In the latest episode, they spoke with California congressman Ro Khanna about Robinhood and the GameStop squeeze.
  • Khanna says the stock-buying craze should serve as a stark reminder of “the over-financialization of our economy.”
  • See more stories on Insider’s business page.

It feels like a fever dream now, but for one week in late January all anyone in the media could talk about was Gamestop’s skyrocketing stock prices.

In case you’ve already driven the episode out of your memory, here’s a brief recap: A Wall Street hedge fund had placed a big bet that America’s biggest chain video game retailer was on the verge of failure, and users from a subreddit called WallStreetBets rushed in to buy stock and force the hedge fund to cover their positions, thereby costing the fund billions of dollars in the process and driving the stock price up in what’s called a “squeeze.”

After GameStop share prices started climbing, stock trading apps that many Redditors used to buy stocks, including Robinhood, suddenly disabled the capacity of users to buy additional shares of GameStop and other so-called “meme stocks” for on-the-skids companies like AMC and BlackBerry that had gained new prestige thanks to WallStreetBets.

Before Robinhood throttled the stock-buying craze, the internet was full of pundits claiming that the little guy was finally striking back against Wall Street, that the age of hedge funds had come to an end, and that a new economic order was dawning. But now that GameStop’s share price has declined considerably (though it remains quite erratic,) those hot takes all seem like empty hyperbole. Hedge funds made fistfuls of money off the GameStop stock fad, and the stock-trading revolution didn’t materialize. The rich got richer – and everyone else, by and large, either lost money or coasted along.

In this week’s episode of “Pitchfork Economics,” Nick Hanauer and David Goldstein talk with Representative Ro Khanna, who represents California’s Silicon Valley, to discuss the true lessons of GameStop mania.

Robinhood’s motives

Khanna has some harsh words for Robinhood’s decision to disable its users capability to buy certain meme stocks without any explanation. “Even if you don’t think there’s any nefarious motive – my sense is it was a liquidity issue and they didn’t have the money required to meet the clearinghouse collateral requirements – you wonder why they didn’t have to have disclosure,” Khanna said.

“They had no disclosure to their investors. They took no provisions to have loans or other capital available if they ever ran into that situation,” Khanna continued, adding that Robinhood also was selling customer data to a hedge fund called Citadel Securities, which then likely profited from the use of that information.

“It does create questions about whether these conflicts of interest should really exist,” Khanna said, “and whether people should be allowed to trade on your data when you have a relationship with someone who has a different financial interest than the investors trading on the site.”

Robinhood, then, seems to be built on two separate models of exploitation. Not only does it serve as a low-friction entry point to the rigged casino of Wall Street, where the house always wins and the little day trader always loses, but it also apparently has the privacy issues of a Facebook or a Tiktok, in which users may not realize that their every move is being scrutinized, packaged, and sold to the highest bidder. Both types of exploitation have thrived under decades of deregulation, and they’re likely to only get worse without some form of government intervention.

On a broader scale, Khanna calls the GameStop craze a potent reminder “of the over-financialization of our economy.”

Some 55% of Americans aren’t invested in the stock market at all, “The fact that so much attention is being paid to this gambling as opposed to investing in building things – battery storage plants or electric vehicle plants – should make us pause about what’s going on in our economic system and why,” Khanna said.

Wall Street’s disconnect

The past year, in which the stock market climbed ever higher throughout the pandemic, even while more and more Americans lost their jobs and financial stability, offers even more proof that Wall Street has become unmoored from the average American’s experience.

Financial success has less and less to do with the creation of solutions to everyday problems and more and more to do with stripping value and leveraging profits away from existing assets. To flip Mitt Romney’s 2012 leaked fundraiser speech on its head, rather than making products and services with real-world value, finance has become about taking assets away from the average American.

Or, as Hanauer asked late in the episode, “Why in the world would you want to make it more lucrative for a highly talented person to rub money together to make more money, rather than go crack some medical problem, or invent some gizmo that could actually increase human welfare?”

It’s a fundamental economic question, and one that will only become more pressing as hedge funds and tech startups continue to run amok. Is the point of capitalism for a select few to make as much money as possible, no matter who gets hurt in the process? Or should the forces of capitalism be directed through regulation toward building concrete benefits for all society?

The next time these two dueling economic philosophies come into conflict, much more than a chain retailer’s flagging stock price might be at stake.

Read the original article on Business Insider

A former Obama economic advisor says inflation warnings about the new stimulus bill are ‘absurd’ – here’s why

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People shopping at an outdoor market in New York City in December 2020.

  • Paul Constant is a writer at Civic Ventures and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In the latest episode, Hanauer and Goldstein spoke with economist Austan Goolsbee on whether or not government stimulus spending could cause hyperinflation.
  • Goolsbee says that hyperinflation is highly unlikely and that the stimulus package should be seen instead as disaster relief money.
  • See more stories on Insider’s business page.

Every time an elected leader proposes a progressive policy that will cost money – expanding health care, for instance, or the wildly popular American Rescue Plan that the Biden White House is championing to combat the economic damage caused by the coronavirus pandemic – the inflation hawks loudly warn that another Great Inflation is on the way.

To anyone below the age of 50, “inflation” sounds like a kind of boogeyman, a campfire ghost story used to warn against government spending.

I’ve never personally encountered hyperinflation in my life – I was born in 1976 – but the word triggers nightmares for those in my parents’ generation. During The Great Inflation, which spanned the years between 1975 and 1982, prices skyrocketed out of control in grocery stores and gas stations around the country, surpassing wage growth by a huge margin and putting everyday necessities out of reach for many.

The fear-mongering of hyperinflation

After nearly four decades without an inflation crisis, is hyperinflation still a danger? Could a $1.9 billion COVID relief bill set off a spate of higher prices around the United States? This week on “Pitchfork Economics,” hosts Nick Hanauer and David Goldstein ask Austan Goolsbee, who served as chair of President Obama’s Council of Economic Advisers and is now a professor of economics at the University of Chicago, whether too much government spending could result in a $10 gallon of milk.

“I consider much of the inflation-mongering to be absurd,” Goolsbee said, adding that rank partisanship is fueling most of the loudest claims. “90% of the inflation-mongering comes from the same people who deficit-hawk when Democrats are in office, but were absolutely for increasing the deficit when Donald Trump was president.”

That said, the return of hyperinflation is always within the realm of the possible. Serious economists do warn that too much government spending might increase the output gap, which Goolsbee explained as “the difference between what we think is the potential is for the economy, and what the actual economy is.”

In other words, if the government starts pumping more money into the economy than the economy is actually worth, the actual value of the American dollar begins to lose coherence, throwing the prices of imports and exports out of whack and potentially driving the cost of goods up.

“In a normal stimulus environment, you’re trying to fill the output gap to get us back to where we were in unemployment and output and wages,” Goolsbee explained.

Because the stock market has largely done very well, and because the wealthiest Americans have amassed over a trillion dollars in additional wealth since the beginning of the pandemic, some economists don’t believe the current economic crisis is big enough to warrant spending.

Stimulus versus disaster relief

Goolsbee believes it’s a mistake to consider the American Rescue Plan to be a stimulus package in the first place. Unlike Obama’s stimulus package, he explained, the plan that the Biden administration is pushing “isn’t about trying to generate a big multiplier on government spending to raise the GDP, the way normal stimulus is. This is absolutely disaster relief money, in which you’re trying to prevent permanent damage.”

This spending isn’t trying to offset generalized harm to the American economy as a whole. Instead it’s counteracting the specific financial harm absorbed by the American people as they followed public health protocols to stop the spread of coronavirus. The money in the American Rescue Plan will go directly toward keeping small businesses open, keeping Americans housed without ruining their credit ratings, and feeding American families who have lost one or both sources of income.

Say the government gives someone $1,000 to make a rent payment that she otherwise wouldn’t have been able to make, preventing her eviction. That’s a very different kind of government spending than, say, propping up the GDP through high-level stimulus spending on financial institutions. It avoids the negative impact on the economy that a wave of mass evictions would represent, and that rent money is immediately recirculated through the economy in the form of consumer spending.

A calculated risk

Goolsbee points to recent economic analysis of the American Rescue Plan, which projects that the output gap would probably grow by about 1% by the end of 2022 – an amount lower than the output gap after both President Trump’s $2 trillion corporate tax cuts and the dot com bust of the George W. Bush Administration.

“We’ve had three times in the last 30 years where we were, for an extended period, running hotter than what [the economy under the American Rescue Plan] would run, without inflation,” Goolsbee said.

But what if, for one time in four decades, the inflation hawks are right and prices do start to rise?

“We as societies, as economies, have a lot of tools for fighting inflation,” Goolsbee said, “and we have virtually no tools for fighting deflation.”

It’s better for our leaders to risk a little bit of inflation that they can then alleviate through higher interest rates and other economic mechanisms, because that price would be nothing compared to what we would all pay if the economy tanks because too many businesses close, too many Americans lose their homes, and consumer spending plummets.

“But that said,” Goolsbee said, “I think the case for inflation is a lot smaller than they say.”

Read the original article on Business Insider

America’s crumbling infrastructure has become a global laughingstock. A new government agency could fix it – here’s how.

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A worker pulls on a floating solar array that feeds into the power supply of a water treatment plant in Colorado.

  • Paul Constant is a writer at Civic Ventures and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In the latest episode, Hanauer and guest host Jessyn Farrell spoke with Cornell law professor Saule Omarova about economic innovation in the US.
  • Omarova is a proponent of a new, 21st-century version of an agency that helped get the US out of the Great Depression.
  • Visit the Business section of Insider for more stories.

In this week’s episode of “Pitchfork Economics,” co-host Nick Hanauer points out that the United States doesn’t really have an industrial policy. Other nations intentionally establish suites of economic, regulatory, and fiscal policies which direct their industrial sectors into specific fields, focus manufacturing into new technologies, and discourage harmful corporate behavior such as environmentally unsound investments. Over the last 40 years, America’s leaders have largely left the industrial sector alone to govern itself. 

That hands-off approach is responsible for some disastrous economic results for the United States. Case in point: Solar cells were created in the United States, and many of the world’s leading solar power experts live here, but Hanauer says that “at some point it became staggeringly obvious” to Chinese leaders that cheap and abundant solar cells “would be enormously useful to the economy and the world, and that having a national competence and advantage in making them would be a good thing.” They directed Chinese manufacturers toward “the goal of building scale and dominance in photovoltaic cells.”

Here in the United States, our leaders either didn’t grasp the growing importance of solar power in a world that was struggling to respond to climate change, or they simply believed that the free market would fill that void. The results speak for themselves: As Larry Beinhart notes for Al Jazeera, “seven of the world’s top 11 solar panel manufacturers are now in mainland China.” 

The complexities of the free market

It should be clear by now that simply allowing the free market to blindly flail around in search of short-term profitability is no way to build an economic future. And America’s cultural insistence on record quarterly corporate profits is a big reason why our infrastructure has become a global laughingstock.

Hanauer and co-host Jessyn Farrell talk with Saule Omarova, the Beth and Marc Goldberg professor of law at Cornell Law School, who has formulated an intriguing new idea to guide American industrial policy even while honoring our national preference for fierce independence.

Omarova is a proponent of a National Investment Authority (NIA), a 21st-century take on the New Deal’s Reconstruction Finance Corporation, which invested money in businesses and products that helped build our way out of the Great Depression.

When it comes to building infrastructure in America, Omarova explains, “it’s really difficult to figure out which tasks specifically should be left to the private market and which tasks should be left to the government.” This leaves what she calls a “dead zone” where some of our most embarrassing failures as a nation have landed – our failure to get broadband and good medical care to rural areas, our inability to build the same kind of inter-city train network that Europe and much of Asia enjoys.

The NIA, Omarova says, would be “an institution that can step into that dead zone, and that is designed to be a hybrid” between the free market and the federal government. “It’s not hamstrung by the short-term profit obsession,” the way that shareholder-driven companies are, she explained. “It has longer time horizons and it has vast resources, and it has its eyes on the public benefit and the public interests first and foremost.”

“But at the same time, unlike the existing government institutions,” the NIA would be “not so constrained by the immediate vagaries of budgetary politics, so it can start working alongside other private market actors and other public government agencies in order to get those projects financed, planned, designed, and implemented.” 

Blending government and free market perks

Just as the NIA would straddle the void between public ownership and private enterprise, Omarova says the structure of the NIA itself would need to be a unique blend of government and free market: While a federal board would oversee the system, “the actual operations will be conducted by its subsidiaries, the federal government-owned specialty charter corporations.”

So consider the solar cell example, in which China invested in an expensive and imperfect technology and eventually became the world leader in a burgeoning clean energy sector. The NIA could have directed American companies toward solar power through an aggressively targeted suite of tax incentives to encourage the building of manufacturing plants and the investment of research and development dollars. 

The US government already performs this kind of incentivization through tax cuts – albeit in a much slower, more limited way. “But at the same time,” Omarova said, “why not have the NIA acting through one of its subsidiaries to become a co-investor, a controlling co-investor, or an equity holder in a company that actually does that?”

By giving the American people a seat at the boardroom table in exchange for taxpayer investments, the NIA might be able to direct manufacturing plants to Michigan, or West Virginia, or other economically depressed locations “where that plant will actually have far-reaching, very important collateral benefits to the economy and to the society as a whole.”

A renewed chance for rapid growth

By placing solar panel manufacturing plants in parts of the country that have been left behind over the last few decades, we’d see rapid job growth, renewed economic vigor, and the much-needed bolstering of infrastructure like clean water and good internet connection speeds. 

Omarova’s idea doesn’t put government in the driver’s seats of corporations so much as it uses government as the pipes through which free enterprise flows, directing that economic energy to where it can do the most good.

The NIA is a complex idea, one that’s literally never been attempted in American history. The idea of investing in future-forward industries creates many opportunities for failure. But when we take a step back and see what 40 years of totally free markets has done to our global reputation as an economic leader, it becomes obvious that a big, bold idea is necessary if we’re going to save the United States from our own worst economic impulses.

Read the original article on Business Insider

How the fight over ‘hero pay’ for grocery workers reveals chain stores’ massive corporate greed

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A grocery store worker inspecting meats while wearing PPE during the pandemic.

  • Paul Constant is a writer at Civic Ventures and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In this week’s column, Constant talks about the ‘hero pay’ raises some stores like Trader Joe’s and Kroger adopted last year.
  • Kroger later blamed this raise for store closures, despite paying out billions in profits to the company’s shareholders.
  • Visit the Business section of Insider for more stories.

Last March, when lockdowns began, grocery store workers and delivery drivers were rightfully hailed as heroes of the pandemic. Even as restaurants and bars closed to stop the spread of coronavirus, grocery store employees risked their health, and the health of their families, to keep Americans fed while white-collar workers transitioned to home offices. From the very beginning of the pandemic they put on homemade masks to stock shelves, ring up customers, and keep the supply chain working when everything else shut down.

At the beginning of the pandemic, public respect for grocery workers was overwhelming and unanimous

Rodney McMullen, the chairman and CEO of the Kroger chain of grocery stores, was effusive in his praise: “Our associates have displayed the true actions of a hero,” McMullen wrote in a press release, acknowledging his staff for “working tirelessly on the frontlines to ensure everyone has access to affordable, fresh food and essentials during this national emergency.”

McMullen backed up his words of support for the heroes on his staff with a bold policy: Kroger, the largest grocery chain in the nation and the second-largest retailer after Walmart, announced on March 31, 2020 that it would “provide all hourly frontline grocery, supply chain, manufacturing, pharmacy and call center associates with a Hero Bonus – a $2 premium above their standard base rate of pay, applied to hours worked March 29 through April 18.”

Kroger’s Hero Bonus pay program eventually ended in May, two months into the pandemic. But the pandemic has continued unabated, and grocery store workers continue to live with a very high risk of COVID-19 infection. A Kroger-owned Fred Meyer grocery store in Seattle had an outbreak infecting 10 workers in December, for example. 

Although the risks for grocery workers are still very high, the hero talk has all but disappeared

And so has the hero pay: Kroger employees from around the country report on Indeed that baggers at Kroger grocery stores earn an average of $9.28 an hour, while cashiers report pay of $10.53. (Bear in mind, too, that those average wages are likely inflated due to cities like Seattle and New York City that embraced a $15 minimum wage .) According to nearly 37,000 employee reports, Indeed said, “Few people think they are paid fairly at Kroger Stores.” In exchange for putting their health on the line for a full year in thankless public-facing jobs, many Kroger workers earn wages that don’t even lift them above the poverty line. 

This year, leaders began to demand that grocery stores pay their employees extra during the pandemic. Lawmakers in Long Beach and in Seattle, among other cities, passed a $4-per-hour hazard pay bonus for workers at large grocery store chains. 

The laws brought some much-needed attention back to workers who have disappeared from the public consciousness, and that pressure seems to have worked: After Seattle’s City Council approved hazard pay, grocery chain Trader Joe’s responded by temporarily raising worker pay around the country by $4 an hour. 

This is great economic news for everyone: not only are workers being rewarded for performing tasks that white-collar workers would never do, but those workers also have extra money in their pockets, which they’ll spend in their communities – including at grocery stores. 

How Kroger responded very differently than Trader Joe’s

In both Long Beach and in Seattle, Kroger issued press releases announcing that they were closing two stores, blaming the hazard pay for the closures. 

I suspect the situation in Long Beach is similar, but since I live in Seattle I can better speak to the closures here. The two QFC grocery stores that Kroger is closing in Seattle are small, underperforming stores in upscale, walkable neighborhoods that have other – most would argue superior – grocery options nearby. (The other thirteen QFC stores owned by Kroger in Seattle will remain open, as well as Kroger’s three Fred Meyer stores inside Seattle city limits, where the hazard pay applies.) 

And, at least one of the targeted Seattle QFC locations had already been slated for redevelopment in the near future. In other words, it seems likely that Kroger could be exploiting stores that were failing before the pandemic to make the point they really want made – if city councils elsewhere try to raise wages, Kroger will continue to hold their employees’ lives and livelihoods hostage in order to keep wages low and profits sky-high. 

Giant corporations love to use splashy intimidation tactics like this to create fear-inducing headlines which help to peel support away from worker protections. But make no mistake: Even though Kroger’s press releases suggested that the grocery business relies on “razor-thin” profit margins, Kroger has been making a ridiculous amount of money during the pandemic. 

Because people have been working and eating at home over the last year, Kroger has boasted of record-breaking profits. For the first two quarters of 2020, reports the Detroit Free Press, its net earnings nearly doubled “to more than $2.031 billion compared with $1.069 billion in the same period of 2019.” 

In the third quarter of 2020, Kroger announced operating profits of $792 million

And with grocery spending in Washington state up by double-digit percentages since the beginning of the pandemic, it seems highly unlikely that hazard pay is the tipping-point expense that forced Kroger to pull the plug on these stores.

And while Kroger isn’t willing to pay the “heroes” its leadership loves to praise in press releases, the corporation happily opened their wallets for shareholders this year, paying out a dividend of 18 cents per share

Last year, Kroger said in a press release, “We have returned approximately $6.4 billion to shareholders via dividends and repurchased shares [also known as stock buybacks] since the beginning of fiscal 2017.” As thanks for returning obscene profits to shareholders, CEO W. Rodney McMullen received $21 million in total compensation in 2019, an increase of 76% over the year before and 798 times the median annual Kroger employee salary that same year. 

McMullen wasn’t the only one who received hero pay a year before the pandemic, ExecPay noted: “In 2019, six Kroger executives received on average a compensation package of $8.7 million, a 46% increase compared to previous year.” 

While Kroger can find plenty of money for its CEO, its executive team, and its shareholders, the corporation picks up its toys and heads home when city lawmakers ask it to increase pay for the frontline workers who have been putting their lives on the line so that Kroger can boast about their unprecedented profits. 

The math is clear: Kroger’s coffers are more than full enough to reward its employees for their essential work in the midst of a global pandemic. McMullen and his executive team apparently prefer to keep that “hero pay” for themselves.

Read the original article on Business Insider

How to respond to the 5 most tired, trickle-down arguments against the $15 minimum wage

fight for 15 minimum wage protest
Demonstrators participate in a protest outside of McDonald’s corporate headquarters on January 15, 2021 in Chicago, Illinois.

When they took power, Democratic leadership didn’t waste any time working toward Joe Biden’s campaign promise to raise the federal minimum wage to $15 an hour. This is great news for all Americans – even if they earn more than minimum wage. It would put more money in the pockets of nearly 40 million American workers, and those workers would then spend that money in their local communities, creating even more jobs with their consumer demand. 

But take it from someone who lived through the Fight for $15 in Seattle and a successful effort to raise Washington state’s wage to one of the highest in the country: As soon as people begin seriously discussing the adoption of a higher minimum wage, the opponents will make themselves known. 

The arguments against the wage are always basically the same, but in the days since Seattle adopted the $15 minimum wage, a growing body of evidence has mostly laid those objections to rest. Here, in one place, are the most frequently asked questions about the minimum wage, with links to studies that debunk the most pernicious anti-wage claims.

MYTH: Raising the minimum wage will kill jobs

Not at all. Published in 2019, the single most far-reaching study on the minimum wage examined “138 prominent state-level minimum wage changes between 1979 and 2016 in the United States,” only to find that “the overall number of low-wage jobs remained essentially unchanged over the five years following the increase.” 

In other words, the gold-standard study, using 40 years of data from around the United States, found that basically no jobs were lost when the minimum wage went up. Additionally, 70 years of Department of Labor data from 1938 to 2009 do not show any correlation between federal minimum wage increases and job loss.

MYTH: Raising the wage will blow a hole in the federal budget and increase government debt

This question is based on the same trickle-down assumption that raising wages kills jobs that we debunked in the first question. The claim is that once the wage goes up, those droves of newly unemployed people will require government benefits to survive, thereby increasing government expenditures and lowering the number of working people paying taxes into the system. 

On the contrary, a brand-new paper out this month by UC Berkeley economist Michael Reich projects that if the Raise the Wage Act is fully implemented in 2025, it “would have a positive effect on the federal budget of $65.4 billion per year,” largely through payroll taxes, FICA, and other sources. The math here is simple: When more people make money, they pay more in taxes – generating roughly $650 billion in government revenue over the course of a decade.

But raising the wage doesn’t just increase tax revenue – it also elevates workers out of poverty, getting them off government assistance. Another study released earlier this month projects that if the Raise the Wage Act is implemented by 2025, “annual government expenditures on major public assistance programs would fall by between $13.4 billion and $31.0 billion.” 

Many millions of workers in the United States are paid so little that they need the Supplemental Nutrition Assistance Program, aka “food stamps,” to get enough food on the table to survive. Moving the federal minimum wage to $15 would annually save somewhere between $3.3 and $5.4 billion in SNAP funds alone. 

Taxpayer money that right now subsidizes low-wage employers through government assistance programs could instead be put toward infrastructure, education, or other pursuits.

MYTH: If you raise the minimum wage, robots will take your jobs

Trickle-downers love to claim that raising the minimum wage will only encourage employers to purchase fleets of robots who can do the jobs more affordably. These claims are absurd on their face; from the cotton gin to the Ford assembly line to the ATM, automation is always happening. It’s disingenuous to suggest that employers aren’t always seeking ways to streamline their businesses, no matter what wage they’re paying. 

Yet even though the march of progress automates whole swaths of the workforce,  Americans continue to work in ever-greater numbers. Automation generally takes the most unpleasant and unsafe tasks off the backs of American workers, but there’s always more work to be done.

One of the most specific automation claims is that if McDonald’s franchisees are forced to pay $15 an hour, then they’ll simply replace their cashiers with touchscreen ordering kiosks. That’s not true. A new study from Princeton found that “Higher minimum wages are not associated with faster adoption of touch-screen ordering.” In other words, there’s no correlation between the adoption of automation and the minimum wage.

MYTH: If you raise the minimum wage, the cost of groceries and burgers will skyrocket

There’s zero evidence that this is true. Here in Seattle, a 2017 University of Washington study kept tabs on the prices of 106 items across six different grocery chains in the city, before and after the wage went up. They found that the wage increase “did not affect the price of food at supermarkets.” 

A study by the Upjohn Institute also found that price increases were “much smaller than what the canonical literature has found,” and that those small increases in costs were restricted to the month that the wage went into effect, meaning that costs don’t creep up in the years and months after a wage is passed. 

And anecdotally, customers in high-wage cities like Seattle and Los Angeles can confirm that you can still get a double cheeseburger for $5 or less at your favorite fast-food chain

MYTH: If you raise the minimum wage, employers will just move their business somewhere with a lower wage

This is probably the most easy minimum-wage myth to debunk. All you have to do is check the data in one state that raised the wage against a neighboring state that did not. 

The Federal Reserve Bank of New York observed the effects of one such increase in counties along the New York/Pennsylvania state line when New York raised its wages. They found no adverse employment effects in counties on the New York state side of the border, meaning that New York employers didn’t lay off workers and move to take advantage of Pennsylvania’s lower wages. 

After the wage went up business continued as usual – only the New York workers were making significantly more per hour than their Pennsylvanian counterparts. 

It’s telling that the Fight for $15 has lasted almost a decade, but the questions that people have raised in opposition to the wage have stayed the same – even as a huge body of evidence has revealed that raising the wage is good for everyone. Once you manage to debunk these common untruths and misconceptions about the minimum wage, it always helps to follow up with a positive attribute of raising the wage. 

It would lift millions of working poor out of poverty, it would increase wages for a large number of workers who already earn more than the minimum wage, and it enjoys bipartisan support, with nearly two-thirds of all Americans favoring a $15 minimum wage. 

As workers in cities and states around the country have already learned, building a stronger, more inclusive economy for everyone – not just a wealthy few – is a tremendously appealing idea.

Read the original article on Business Insider

A Biden economic appointee explains how a ‘true new deal’ plan uses 9 reforms to rebuild wealth for all Americans

Bharat Ramamurti
Bharat Ramamurti is a member of the COVID-19 Congressional Oversight Commission.

  • Paul Constant is a writer at Civic Ventures, a cofounder of the Seattle Review of Books, and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In this week’s episode, Hanauer spoke with Bharat Ramamurti, deputy director of the incoming Biden administration’s National Economic Council who recently coauthored ‘A True New Deal’ that details a plan for inclusive economic recovery during the pandemic.
  • The plan promotes canceling student, housing, and medical debts, guaranteeing universal childcare, and restrengthening antitrust laws.
  • Ramamurti says the plan isn’t about redistributing existing American wealth; it’s about changing the patterns of wealth pre-distribution and ensuring that “every American creates wealth of their own.”
  • Visit Business Insider’s homepage for more stories.

If we want to fundamentally repair the economy so it works for everyone, Nick Hanauer says at the beginning of the latest episode of Pitchfork Economics that we must fully recognize that “the neoliberal era was a disaster and that we need to, in deep structural and ambitious ways, replace those ideas and that policy framework with something new.”

Of course, that’s easier said than done. You can’t simply raise a tax by a couple of percentage points and expect everything to be fine. Over 40 years of trickle-down economics – that is, the aggressive pursuit of tax cuts for the rich, deregulation for the powerful, and wage suppression for everyone else – has left America’s economy in a critical condition, with income inequality nearing historic highs. Our economy desperately needs deep structural reform, but what does that even look like? The last time we overhauled our economy, when FDR created the New Deal to counteract the damage done by the Great Depression, is quickly passing out of living memory.

Luckily, a progressive think tank called the Roosevelt Institute is stepping up to carry on the legacy of its namesake. The group recently published the details of what it calls A True New Deal, a suite of policies to repair the economic damage caused by the pandemic, bridge the income inequality gap, and build a more inclusive and diverse economy. 

The policy proposal calls for nine major areas of reform. In the Roosevelt Institute’s own words, these nine reforms are:

  • Canceling student, housing, and medical debts – and implementing structural change to address the accumulation of debt;
  • Creating a federal jobs guarantee;
  • Federalizing and expanding unemployment insurance;
  • Building a modern Reconstruction Finance Corporation;
  • Guaranteeing universal childcare;
  • Mandating sectoral bargaining;
  • Ensuring corporate accountability through federal chartering;
  • Reinvigorating antitrust law for real trust-busting; and
  • Rebalancing political power through institutional reform.

Bharat Ramamurti, a coauthor of the True New Deal, joined Hanauer to discuss the big ideas behind the plan. 

Ramamurti isn’t some dilettante in the world of economics: He’s served as an economic advisor to Senator Elizabeth Warren, and he recently left his position as the managing director of the Roosevelt Institute’s Corporate Power Program to serve as the deputy director of the incoming Biden administration’s National Economic Council. He’ll have a direct hand in shaping America’s economic policy in the months ahead.

Ramamurti says the team at Roosevelt wrote the True New Deal “to reorient the role of public power in the economy, reassert that role, and, in doing so, fundamentally change the way that money flows through the economy.” 

To those who accuse the authors of the True New Deal of redistributing wealth, Ramamurti says they’ve got it exactly backwards: It’s not about redistribution, it’s about changing the patterns of wealth pre-distribution. 

Much of the Democratic agenda over the last few decades has been redistributionist, focusing on “taxing the wealthy and big corporations, and then reinvesting that money into programs that help lower income and middle-class families,” Ramamurti explained. 

While redistribution is an important tool in the economic toolkit, it still largely subscribes to the discredited theory of trickle-down economics, in which wealth is created by the wealthy. 

Read more: How full Democratic control of Washington DC could transform real estate

What the True New Deal seeks to do is “reconceive the rules of our economy,” to “swing the pendulum back” to a time when everyone created our nation’s wealth.

This was when workers’ wages were high, corporations didn’t “exist solely to maximize the returns that they send to their shareholders rather than having any obligations to their workers or their community,” and everyone owned a share in the American dream.

These pre-distributionist concepts, Ramamurti explains, enjoy sweeping bipartisan support.

“Putting workers on corporate boards is extremely popular,” he said. Universal free or affordable childcare is a popular idea that could help re-enfranchise the hundreds of thousands of women who’ve left the workforce during the pandemic to take care of school-age children. 

“Changing the antitrust rules so that smaller businesses have a better opportunity to compete against bigger businesses is really popular,” he concluded, “and it opens up opportunities not only for consumers, but also for workers who have more potential employers.”

Ramamurti believes the True New Deal “has an opportunity to speak to a really broad set of people who understand that there’s something fundamentally unfair about the economy that they’re living and working in.” 

And of course, the economy is more unfair to some of us than it is to others. We all know about the wage gaps between workers based on race and gender, but Ramamurti points out that experiences with debt drastically differ depending on race, too. 

“Twenty years after graduating, the median white student loan borrower has paid off 95% of their loan,” he said, “and the median Black borrower still owes 95% of their loan.”

That’s why the True New Deal works to eliminate some of the structural racism and sexism in the economy by addressing decades’ worth of conditions that created huge intergenerational wealth gaps between white and nonwhite populations, even as it also levels the playing field between the haves and the have-nots.

Read more: Banks could pay $11 billion more in taxes if Biden rolls out his campaign’s corporate tax proposal

The goal isn’t to redistribute pre-existing wealth, but to ensure that every American creates wealth of their own. 

“As we make these types of structural changes to the economy and rebalance some of the power dynamics that exist in society and in the economy, it’s important to recognize that we do that in a way that empowers Black and Hispanic families and communities that have too often been cut out of those power structures before,” Ramamurti explained.

The end result is an economy that works for everyone – not just the privileged few.

Read the original article on Business Insider

A Stanford finance professor explains why there’s no such thing as ‘deregulation’ – no matter what politicians claim

Federal Reserve coronavirus
A man wearing a mask walks past the US Federal Reserve building in Washington DC on April 29, 2020.

  • Paul Constant is a writer at Civic Ventures, a cofounder of the Seattle Review of Books, and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In this week’s episode of Pitchfork Economics, Hanauer and guest cohost Jessyn Farrell spoke with Anat Admati, a finance professor at Stanford’s Graduate School of Business, on how banking is regulated in the US.
  • Admati says it’s natural for elected leaders to create more safety nets to make banking safe for American consumers.
  • The concept of government ‘deregulation’ won’t result in less regulations, Admati explains, but instead will allow banks to create their own regulations that can be prone to negligence and fraud.
  • Visit Business Insider’s homepage for more stories.

It’s quite possible that the greatest trick that trickle-downers ever pulled was framing the battle over government’s relationship to business as regulation versus deregulation. It sounds simple, a binary choice between all or none: Either you want businesses to be regulated, or you want to deregulate the market. “Deregulation” in this context sounds sleek, minimalist, and freeing, while “regulation” sounds cumbersome and complicated.

But here’s the dirty little secret about deregulation: It doesn’t really exist.

There’s no such thing as “fewer regulations,” only a shell game that shifts ownership of regulations from one authority to another. What we call “deregulation” simply stands for a belief that corporations should act only in ways that suit their preferences – with no consideration for anything beyond shareholder value.

Read more: The newly passed California Privacy Rights Act expands consumer privacy laws. Here are 3 crucial ways businesses should prepare in 2021, according to a veteran cybersecurity expert

In other words, human activity within a society is always regulated – the only question is who’s doing the regulating. 

All that really changes when, say, the Trump administration moves to roll back regulations on oil drilling in the Alaskan Arctic, is that the government cedes control over drilling regulations, handing the reins to the oil industry. While the government’s regulations sought to protect unspoiled public lands, the oil industry’s “regulations” seek to enrich shareholders and executives at the public’s expense by exploiting irreplaceable environmental resources in exchange for a quick buck. 

Back in 2008, we saw what happened when the federal government systematically ceded control of regulations to the banking industry over the span of decades. Left to their own devices, the banks set in motion a mortgage crisis by building up a pyramid scheme that nearly brought down the global economy. The banks’ regulations favored immediate profits over long-term sustainability, and the rest of us paid the price.

That economic collapse is part of the reason why this week’s guest on the Pitchfork Economics podcast, Anat Admati, half-jokingly refers to herself as “a recovering finance professor.” Admati, who still teaches finance at the Stanford Graduate School of Business, says the egregious failures of unfettered capitalism have caused her to look at banking regulations in a new way. 

“I’ve become very interested in why capitalism and democracy are failing us altogether,” Admati told Pitchfork Economics hosts Nick Hanauer and Jessyn Farrell. Admati’s fascination with regulatory collapses led her to her role as director of the Corporations and Society Initiative, which seeks “to promote more accountable capitalism and governance,” and also inspired her to coauthor a book titled “The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It.”  

Admati realized that the financial industry was ill-equipped to regulate itself in 2013, when Wells Fargo CEO John Stumpf argued against new Federal Reserve regulations that would require the bank to stop making risky, debt-laden bets like those that caused the financial crisis. Stumpf bragged that “because we have this substantial self-funding with consumer deposits we don’t have a lot of debt.”  

Admati was astonished. “In other words,” she explained, “he forgot that my deposit is basically his debt to me, and he forgot that it’s a liability to him. Why? Because I don’t behave like a creditor.” 

Even though Wells Fargo technically owes its customers the money that they entrust them with, the FDIC insures those deposits and the government has proven that it’s ready and eager to protect giant banks from crises of their own creation. 

Read more: We mapped out the ghost kitchens run by ex-Uber CEO Travis Kalanick’s CloudKitchen and competitor REEF Technology. See where the fight for ghost kitchen dominance is heating up.

It’s only natural that elected leaders create “more and more safety nets to make [banking] safe.” 

“But the safety net has enabled more recklessness because perversely it created ever more complacency and also removed any market forces from this system,” Admati added.

In short, a CEO whose bank was buffered by one comprehensive set of federal regulations that were created to protect consumers from financial negligence was arguing against other industry regulations that would have caused Wells Fargo to behave responsibly. It’s a deeply layered ecosystem of regulations – seen and unseen – that often contradict each other in complicated ways.

To a trickle-downer, this might sound like a story highlighting the importance of deregulation. But remember – that’s just an argument for letting Wells Fargo create its own regulations, which isn’t a terrific idea, given the institution’s extensive history of fraud. The best answer is to regulate smarter – to realistically gauge the purpose of each regulation, ascertain how it can benefit the broadest number of people, and enact it so that it functions as efficiently and successfully in the real world as it does in theory. 

“We have to have a system in which the government works for us,” Admati concluded. “If we don’t understand that we need an effective government – not big or small, just competent and effective – to actually create an economy that functions, then that’s why we’re in the trouble we’re in.”

Read the original article on Business Insider