Okay, so what I want to do here is try and work out some ideas I have about the economy and the role that banks play in it and how people think about that. In one sense, I want to address what I see as shortcomings of Bernie Sanders views on the economy. But in another sense, I want to try and present something that occurred to me before, sometime when I was thinking about this kind of stuff.
Larry Summers wrote a wonderful, nuanced critique of a New York Times op-ed piece Bernie Sanders wrote about policy reform regarding the Federal Reserve System. The Sanders piece was largely ignored at the time, but since then he has put out a speech, “Wall Street and the Economy” with a more comprehensive view of economic reform. There is a nice overview of the speech and its substantive content, as well as a summary of the response from Wall Street afterward, from Naked Capitalism.
Sanders delivers a progressive wish list of limitations on banking and finance. It is disappointing that he doesn’t seem to even notice all the good work being done by smart liberals. The Rewrite the Rules project at the Roosevelt Institute, with contributions from Joseph Stiglitz, Mike Konczal, and others. But people don’t want new and different. They just want to go back to when everything was all cool. Which was actually never, except in their imaginations.
Banking is one of the institutional foundations of the world we live in. And bankers are aware of this fact. Money is, in some ways, extremely useful. I remember when I was in China, visiting my brother, who teaches English in the suburbs of Chengdu, that I haggling everywhere, as an expected part of a transaction. When I was younger, I remember being quite taken with the idea, the fantasy, of haggling, but in truth I am a terrible negotiator. It occurred to me later that haggling required considerable effort on the part of both parties in an exchange. Somebody who is exhausted and malnourished is easier to take advantage of, while people of higher station not only benefit from better health, but also from the privileges inherent in higher social status. In the US, its kind of an advantage not to have to haggle over prices. If you really want to haggle, its possible to find arrangements here and there, but as a general rule, prices are simply up front. Which is kind of great in a way. Anybody can buy anything as long as they are able to pay.
We who have grown up immersed in a capitalist society can scarcely perceive what a radical thing capitalism can be. When you have to rely on social cues for your well being, you have to strive to be who other people expect. But if everything is available to everyone at consistent prices, you can be whoever you want. Some people decry the sameness of mass produced consumer commodities– but think of it this way: the Coke you get at the store tastes the same, and pretty much costs the same amount, as it does for anyone else. Rich people enjoy it the same as poor people. This is a view laid out in The Philosophy of Andy Warhol, a book I love for its whimsical and yet lucid treatment of modern culture. Warhol was a way deeper guy than I think most people give him credit for. He was a devoted Christian, too, and went to church every Sunday, as well as volunteering at a soup kitchen in Manhattan. He had an openness to people that I really admire. You find that in New York City, that kind of radical tolerance of others. It’s one of the biggest differences between it and Chicago, which is dominated by aggressively conformist Yankee culture – a view developed and explored in the book American Nations by Colin Woodard.
Anyways, the point is that the financial system we presently have in the US is actually pretty useful, in spite of all the malice it seems to have inspired since the Crisis of 2008. Being able to save money securely, being able to write and cash checks, and being able to get loans are all super useful. On top of that, credit is not only useful for making purchases, but also as a kind of proxy for social approbation. In the 1950s, black people traveling in the US would have a very difficult time finding a hotel room. Nowadays, anyone with an internet connection and a credit card can get a hotel room anywhere in the country. The credit company vouches for it’s customers while simultaneously supervising them. Banks, in larger sense, have long provided the same basic service to the economy.
Any business concern requires financing. Under capitalism, savings are (in theory) invested, so as to earn interest. In a liquidity trap, desired savings are greater than available investment, and the holding of cash becomes incentivized. This is how companies hold $2.1 trillion in profits in offshore accounts and don’t worry about it. The inflation rate is close enough to zero that they can afford to just sit on that money.
What we need to do, of course, is boost aggregate demand. People get really confused about this idea, because the it sounds like more spending and more debt, and that just seems intuitively wrong. On the other hand, I’m pretty sure if I recommended reforms where private vehicles as a common mode of transportation would cease to exist, people would look at me as if I was insane. If we all lived closer together in smaller dwellings, stopped watching television and entertained ourselves by playing sports and reading poetry, and gave up the habit of driving everywhere, we would save enormous amounts of resources. But none of that is going to happen, because people don’t really go for comprehensive change, unless there has been some sort of terrible crisis.