Episode 46 – Austerity and the Consumer Debt Trap with Emma Caterine

Macro N Cheese – Episode 46 
Austerity and the Consumer Debt Trap with Emma Caterine 
December 14, 2019 

 

Emma Caterine [intro/music] (00:00:04): 

In these places that have been ravaged by private equity, that have been ravaged by just corporate greed in general, where people have lost their jobs, the solution that’s given to them is to take out a loan. 

Emma Caterine [intro/music] (00:00:24): 

The great recession wiped out Black wealth in this country, literally wiped it out in a very short amount of time. 

Geoff Ginter [intro/music] (00:01:23): 

Now let’s see if we could avoid the apocalypse altogether. Here’s another episode of Macro N Cheese, with your host, Steve Grumbine. 

Steve Grumbine (00:01:34): 

And this is Steve Grumbine with Macro N Cheese. Today, we have Emma Caterine. She is on the board of directors for the Modern Money Network. She is a consumer rights attorney in Brooklyn, New York, a writer with more than a decade of experience working in economic justice, feminist, LGBTQ, and racial justice movements.  

She has been a proud member of the Democratic Socialists of America, and I am blessed to have her join me today. Welcome to the show, Emma. 

Emma Caterine (00:02:04): 

Thanks for having me on. I’m really excited to be here. 

Steve Grumbine (00:02:09): 

The feeling is absolutely mutual. You know, when I watched you on Twitter and you know, obviously we’re close to the Modern Money Network and we enjoy working within this space very, very much. I think the smartest people around, the most caring and driven people around, live in this space, relentless and just nonstop warriors, trying to get the word out that changed the world.  

And I’m watching you on Twitter and you are witty, you are brilliant. And some of the things that I see you say are just the departure from some of the things that I have been watching in other groups, because you’ve got a totally different angle on some really cool stuff. And in line with that, one of the things that really drew me to you was the idea of credit as a social construct and understanding how credit plays into our economy in the equity, not just equality, but equity within the system.  

And you’ve done some recent work on that. One of your recent debates paper that you had written, just a very, very powerful description of the loan sharking business and so forth. What I’d like to do is let you tell us a little bit about loan sharking and credit as a social construct. 

Emma Caterine (00:03:30): 

Yeah. So I wrote a piece for the Law and Political Economy Blog, which is run by Yale Law School. It’s a great blog. I recommend everyone checks it out. And I was debating Professor Anne Fleming about whether or not we should regulate the extension of credit to consumers through an interest rate cap.  

And particularly around legislation introduced by Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez called the Loan Shark Prevention Act, which would set a 15% interest rate cap on consumer loans. It’s a very radical legislation. For example, right now in the United States, we don’t have any cap effectively on interest rates for consumer loans due to an exception for federally chartered banks to make loans that essentially whatever interest rate they want to.  

So that allows them to get around state interest rate caps like we have here in New York; and further, you know, there’s an alternative proposal in Congress for a 36% interest rate cap. And that comes from what’s called the Military Lending Act, which for service members in the US military, they cannot be given loans with a higher interest rate than 36%.  

And that number isn’t just completely arbitrary, where it really comes from is the common interest rates you see on consumer credit, particularly things like credit cards, small loans, auto loans, retail installment contracts, you know, like rent to own furniture or TVs and so forth. And so what Senator Sanders and what Representative Ocasio-Cortez put forward is a bit more radical because it’s not just going after the payday loan people.  

The title loan peoples are the most obviously predatory people, but it’s also challenging the big banks, the main stream of Wall Street that regularly extends credit to consumers at interest rates above 15%. So it would be quite a revolutionary change. And as I said, there’s two proposals right now in Congress, one for 15%, one for 36%.  

So there’s a little bit of a split amongst the Democrats in Congress. So I definitely recommend all your listeners to let their Congress people know how they feel on the issue. But [inaudible], I actually wanted to start with some macroeconomic background that I didn’t actually get into in the piece.  

My editor kept me to a very strict word limit, which is good, of course, but there’s some macroeconomic stuff I’d like to explore if that’s all right. 

Steve Grumbine (00:07:11): 

Absolutely. In fact, I’m glad you teed that up because one of the papers that you had sent to me in preparation for this interview, you know, really kind of broke down what are the conditions that make these loans even matter, which drives a direct stake in the heart of an issue I care very much about as my Twitter handle austerity is murder.  

I mean, the austere conditions of the federal government spending on the public purpose in and of itself have created a lot of conditions that I hope we can explore. And I hope by attacking the macro side of this, to begin with, that we can start moving in that direction. So by all means, go for it. 

Emma Caterine (00:07:51): 

Right? And I mean, this is exactly the issue. This is exactly why I got interested in the MMT world is because contrary to the way that this is usually talked about – consumer credit, the terms of consumer credit, how much is being extended, how it’s being extended – all of those things have an influence, not only on the rest of the private sector, but also on the public sector.  

And I think a really useful way to think about this is what’s called sectoral balances, but unfortunately I’ve seen some folks, even some MMT folks seem to have some misconception, at least in my opinion, the way the private credit works in sectoral balances. There’s this sort of idea that private credit essentially cancels itself out.  

That for example, if a bank is making a loan of a thousand dollars to somebody that cancels itself out, because it’s a $1,000 asset to the bank and a $1,000 liability to the consumer. And the idea is that the private sectoral balances is only altered by interactions with the government’s sectoral balance such as private investment government bonds.  

So as I said, I think this misunderstands private finance and how sectoral balances work, because I think the private extension of credit results in a balancing between the private and the public sector, not just the balancing within the private sector. And . . . 

Steve Grumbine (00:09:43): 

Before you go on, let me ask you a quick question to clarification. When we’re talking about sectoral balances, the way I understand it, and I just want to set the stage for those who maybe haven’t heard the term before. When we were talking about sectoral balances, I understand it to be private credit, public debt and rest of world, which is kind of leakages and balance of trade and things like that.  

Is that the sectoral balances model stock flow, consistent modeling, et cetera. I mean, is that what we’re talking about here? Or is there another aspect of this that I didn’t touch on? 

Emma Caterine (00:10:19): 

That’s essentially what it is. So basically he wasn’t the first person to do it, but the person who’s most well known for this is Wynne Godley, British economist. And essentially what it is is that you take two different equations for GDP and you set them against each other and you use that to calculate the sectoral balance of the private sector, the sectoral balance of the government sector, whether, you know, the government is running a deficit or whether it’s running a surplus.  

And then what’s often called current accounts, which is just the trade balance imports versus exports. And for the private sectoral balance, it’s calculated by the private savings minus the private investment. And I think that’s one of the major misunderstandings here is that consumption isn’t actually calculated for the purpose of determining the private sectoral balance.  

Consumption actually nets out in the equation. I don’t want to get too much into the wonkery. I think it’s even for people who are familiar with it, it’s a little bit difficult to follow when it’s all being spoken about. I, you know, I wish I had a white board that I could show your listeners, but to get a little bit back on track.  

So basically I think it’s important to understand the way that private credit interacts with sectoral balances. Cause it’s really kind of the key to understanding financial crises with the risk of default that exists with private consumer debt. The default risk is of course far higher than the default risk of monetary sovereigns with US at this point, there’s essentially zero risk that the US is ever going to default.  

And well, you know, private credit defaults can be mitigated and postponed through extension agreements and refinancing and debt buying and so on and so forth. It’s really only government intervention that can discharge defaulted obligations through things like bankruptcy. And so with the subprime foreclosure crisis, you had a very quick loss of value of the creditors’ assets.  

They had all these subprime mortgages and the people who they lent them to could not service the debt, could not keep up with their payments and they defaulted. And for various different reasons, the creditors were not able to get the full value of their asset. And this is even more the case for the secondary assets that are usually the focus of blame for the foreclosure crisis, the mortgage-based securities and the credit default swaps.  

And you know, this doesn’t actually change the value of the liability. If you had a subprime mortgage and you default on it, you still owed that much money, right. Even if the bank is not able to get that money from you, you still owe it up and until you’re able to get it discharged through bankruptcy or something like that.  

And so that is a change in the private sectoral balance. That’s generally responded to, as we know, with an increase in the public deficit, which in the case of the foreclosure crisis was the two stimulus packages, the TARP Program (Troubled Asset Relief Program) and so on. So, you know, you have this crisis in the private sector, loss of value of all these financial assets and that results in the government having to bail out the private sector.  

So a guy who I mentioned earlier, Wynne Godley, who really pushed the sectoral balance approach, you can find a lot of his writing in the Levy Institute. He did a lot of great analysis of this for both the shorter 2000, 2001 recession, and then for great recession and was very good at predicting both of those events.  

And specifically he compared net lending to the private sector as a percent of disposable income versus the private sectoral balance as a percent of GDP. And what he found was just like the private sectoral balance is the inverse of the government – then when the government runs a deficit, the private sector has a surplus – and vice versa.  

It’s the same thing with debt in the private sector. And as he correctly predicted when our economy is grown through debt in the private sector, that’s not a sustainable strategy that that will eventually lead to these crises and particularly . . . 

Steve Grumbine (00:15:54): 

But before you go further with real quickly, Stephanie Kelton has been all over this as well. One of the great articles out there in Business Insider, where she was directly asked about as it pertained to the Clinton “Goldilocks Economy” and the quote, unquote “flaunted,” you know, Clinton surplus, they still deify Clinton as the great economic mind of the party.  

And you can see it evidenced in Nancy Pelosi who is still pushing PAYGO, and things like this. The austerity minded approach to balancing budgets and actually reducing deficits and so forth is very deeply ingrained in this. I just wanted to get that out there. She’s put the sectoral balances graph where you see the mirrors of the sector’s balance, and you can clearly see where these recession points hit right there, smack dab – the model doesn’t lie.  

I just wanted to throw that in there. I thought that was important. 

Emma Caterine (00:16:53): 

And it’s funny because the response that I sometimes see to this from more mainstream, orthodox economists from people like Paul Krugman, other sorts of orthodox, Keynesian-type people is they say, well, you know, that’s just accounting. That’s just a fact. You’re not really explaining how these crises happen.  

And to a certain extent that’s true in as much as the sectoral balances are what they are; but that’s kind of the whole point of what MMT and what economists like Godley and Wray and Stephanie Kelton have been trying to show is that this idea that the public deficit is this inherent evil that we need to avoid it all costs or that financial crises are caused by some sort of imbalance in the economy is not really true.  

That what the sectoral balances approach is useful for is showing that these are choices that we make. That when we are choosing to engage in austerity politics to cut public spending, we’re making a choice for that to play out on the other side of the equation, for that to play out on private sector, which is important to note is households as well as corporations and all of that.  

And of course, with consumer credit, the impact there is on households. It’s largely falls on households. And I just want to note for consumer credit, one of the things it does with the private sectoral balance is that, you know, if you have a lot of debt, you have all of these payments to make on your mortgage, on your car, and so on so forth, you’re probably not going to be saving a lot of money.  

And really what the private sectoral balance is, is net private savings, that’s savings minus investment. And of course, this actually also plays out in the private corporate sector as well. A lot of economists have remarked on the low level of investment, especially recently being made by corporations, which was temporarily averted by the Trump tax cuts, but that sort of growth and investment doesn’t appear to be sustainable in the long term.  

And we’re seeing right now unprecedented levels of corporate debt. And so a lot of these corporations are so burdened by servicing their own debts, that they don’t have the money to be saving, to be making investments. So on. 

Steve Grumbine (00:20:07): 

Know, I talked to Randall Wray at the MMT Conference, not this most recent one, but the second one at the New School. And when I was talking to him, I asked him about, what do you think about the next recession? He said, next recession? And he said, well, you know, honestly, I think what we’re going to see is more bubbles.  

I think we’re going to see the stock buyback bubble really impact the market as a whole and not just the market, but the entire economy and mix that with the student debt and all this stuff really comes back to the private debt once again. I just thought that was very interesting and it very much marries to what you’re saying as well. 

Emma Caterine (00:20:43): 

Yeah. And something that I’ve been focused a lot on recently, I’m working on a law review article on right now is private equity. Private equity firms are rather infamous for loading private companies with tons of debt. And then those companies in order to service that debt do things like cut jobs, sell off all of their real estate holdings and so on and so forth.  

And it has a really detrimental effect on the local communities that those companies are in, working people, especially people of color, especially. And I think we never learned the lesson of the foreclosure crisis and the great recession. We still have a growth model in this country that’s through private debt.  

It’s just less based on mortgages, on subprime mortgages, in particular, than it was before. And there seems to be a hope among a lot of mainstream economists that that will be enough to stop another recession from happening. But that is pretty doubtful considering that, you know, we have, for example, over a $1.5 trillion in outstanding auto loan debt, that oftentimes is securitized just like those subprime mortgages were.  

So you can have the exact kind of cascading domino effect because, contrary to popular belief, just like with the foreclosure crisis, you’re not going to get the full value of the asset just by repossessing the car in this case. 

Steve Grumbine (00:22:40): 

You know, you bring this up, I think it’s worth noting. You look at Detroit, Michigan, and the same exact thing happened in this municipality. And then you look down at Puerto Rico, the exact same thing happening. Unbelievable. And you look, and you see when folks look at Greece, the same sort of predatory positioning, even though I know that the troika is not exactly a, you know, a private equity firm, they’re doing the exact same kind of debt-based austerity on not just businesses and people, but actual states and countries and townships, you name it.  

It’s an epidemic. I think this is like a whole business model. 

Emma Caterine (00:23:27): 

It is. And specifically what a lot of folks have tied it to like Eileen Applebaum and Rosemary Batt is to the advent of what’s called agency theory, which is a theory in corporate law and in business practices that was derived in the late 1970s by this guy, Michael Jensen, and a really big part of that theory .  

. . The theory essentially, to just give a really quick description of it was, it said management is too fallible to not following the will of the market, whatever the will of the market means. And in order to get companies to more consistently follow the will of the market, we need to put investors in control because investors won’t be clouded by personal greed or by, you know, feeling bad for their employees.  

They’ll look at things as a simple dollar calculation. And a big part of this theory is what they call the control function of debt, where they say, yes, we want to load up companies with lots of debt, because if they have debt, then they’ll need to service that debt, they’ll need to make payments on that debt and that anxiety about making payments on the debt will make sure that they’re making money and that they’re cutting costs as much as possible.  

And this is a kind of a ridiculous thing because that’s already how capitalism works, right? It’s kind of a basic capitalism 101 that in order to stay competitive, you cut cost so on and so forth and . . . 

Steve Grumbine (00:25:24): 

The race to the bottom. 

Emma Caterine (00:25:24): 

But it’s just really a sort of more intense version of it, nore modern version of it, that depends heavily on financial companies; and the role of private financial companies in the economy is to plan. They are the deciders, the ones who are making decisions about where the money goes, and . . . 

Steve Grumbine (00:25:55): 

That doesn’t sound very democratic. 

Emma Caterine (00:25:58): 

No, it is not. And a huge reason why I’ve gravitated to MMT because it’s a lot of MMT thinkers who are pointing this out, that the balance between the private sector and the government sector, there’s not some sort of correct balance, some natural balance. The people like Pete Buttigieg would argue that, Oh, the government deficit is so high.  

We got to make it lower. It’s reached some sort of magical number that’s bad, and we have to get it to a good number. No. There’s no such thing. There’s no such thing. These are all political decisions. And again, it to the power of who gets to make decisions about our economy, who gets to plan out how our economy works.  

Sometimes people will talk about this in terms of the command of the resources in our society. This power, when it comes to the private sector, is generally held by capitalists; and I mean that in the classical sense of the word, not just advocates of capitalism, but rather people who own and control capital; and then increasingly by the financial sector.  

The private financial sector has essentially filled the gap of planning that’s been created by neoliberalism; that’s been created by austerity politics that have intentionally let go of the government’s power and planning through cuts in spending from privatization through market based decision making. And . . . 

Steve Grumbine (00:27:49): 

I just want to tell you right there that right there, if I could capture that 30 second clip is just out of this world, phenomenal, really really well done. I agree a hundred percent. 

Emma Caterine (00:28:00): 

And what’s really scary about it is that again, we didn’t learn the lessons of the foreclosure crisis or the great recession. In fact, we’ve doubled down on all these things. You know, the one honest thing that the private equity industry has possibly ever said is we didn’t cause the great recession.  

They’re right about that. They weren’t a very big player at the time that the great recession happened, but now they are. And that’s the sort of doubling down on a private debt financed growth/private debt financed economy that we’ve seen. And it’s scary. There is a great piece in the New York Times, it was kind of one of these cool interactive sort of deals, whereas, you know, lots of graphics and so on.  

And the point of the piece was just to show you how so many of the things in your day to day life now from your water to your tooth paste to your lunch has private equity involved in it. And unlike a lot of investors in the past, private equity is intimately involved in management decisions. So when I talk about the financial industry being planners, usually that means things like Citigroup, for example, saying, yes, Keystone XL, we will give you a revolving line of credit for your pipe; but they don’t decide where the pipe gets built.  

They don’t decide any of the specifics. Private equity has changed that and private equity’s mission in deciding the specifics is what’s often referred to as vulture capitalism. They want to strip every bit of value for themselves. They don’t care about the long term sustainability of the company that they are quote, unquote “investing in.”  

And that’s what leads to things like the closure of Toys “R” Us, the closure of Blackjewel, which is a mining company in Kentucky. A lot of coal mining companies have recently declared bankruptcy due to debt burdening by private equity companies. It’s frightening how prevalent this model is becoming.  

And the only sort of hope is that politicians like Senator Elizabeth Warren with her Stop Wall Street Looting Act, and Senator Bernie Sanders are finally speaking up and trying to carve out another way forward. 

Steve Grumbine (00:30:55): 

That’s powerful stuff. Let me ask you, given that we’re talking, even though this is still, you know, dealing on a private level, this starts trickling down to you and me and people who are far less capable of absorbing the shocks to each of these companies, the communities that these companies keep afloat by the economic activity and all the other cultural aspects of a community.  

You see rust belts throughout America, you see all kinds of old malls that are completely empty. You see places that have never, ever been revitalized that stand no chance. And we’re not talking about just the typical going back in there and basically kicking out all the poor folk and building it up for that rich folk.  

We’re talking about literally leaving these places as ghost towns. Talk about the impact that these vulture capital predators here have on communities as a whole, not just the companies, but the people. 

Emma Caterine (00:32:05): 

Well, my law school, my labor law professor is a great man named John Cicero. And he worked for the National Labor Relations Board back in the day. And what he told me was he’s never seen anything quite so devastating as a company or even just a factory in one of these sort of small towns being shut down.  

The effect is devastating. We’re talking about not just in misery of the population, but quality of life. The people are living for less long, especially, you know, people in my generation are living for less long. It’s a feedback cycle because without public investment, when we’re under these sort of austerity conditions, especially under the Trump administration, what we have is the only life raft that’s thrown is private credit.  

And these places that have been ravaged by private equity, that had been ravaged by just corporate greed in general, where people have lost their jobs, the solution that’s given to them is to take out a loan. It was unfortunately quite common in the aftermath of the foreclosure crisis, that people who had lost their homes and needed money to get new homes or to, you know, make a down payment on an apartment or whatever, were taking out payday loans or title loans, things of that nature.  

And just deepening what advocates call the ‘debt trap’ that once you are stuck in it, you just get sucked down further and further like quicksand. And you know, this is the inverse side to the growth that has justified the use of this private debt model in our society. You know, people are pointing to right now that we have some of the lowest unemployment numbers that we’ve ever seen, that we have a quote, unquote “good economy.”  

And meanwhile, we have unprecedented amounts of non-mortgage, consumer debt with student loans most famously, but equally as bad is the auto loans that I was talking about earlier. And also we’ve seen a huge surge in credit card debt. Credit card debt is especially pernicious because it has always meant to be a gap filler.  

And the people who run these things are not shy about saying this. There’s a statistic that Bernie Sanders had been using in a lot of the debates talking about how the average American family would not be able to handle a emergency expense of $400. And some, you know, schmuck on Bloomberg, the business news site said, well, you could take out a credit card.  

You could take out a loan, and then you could cover the $400. And it’s that sort of just shameless callousness of not investigating. Why aren’t people making enough money to be able to handle these expenses, or, you know, if it’s, for example, a medical emergency, why as a society, are we not investing in making sure that, you know, someone who God forbid was diagnosed cancer or something like that, that doesn’t bankrupt them.  

You know, that our solution to that is not, Oh, we’ll take care of you. Oh, well, we as a society, you know, we’ll decide this is wrong and horrible and we’ll stop it. Instead, it’s get further and further into debt. 

Intermission (00:36:40): 

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Steve Grumbine (00:37:29): 

You know, it’s interesting. I suffered immensely from the financial crash in 2008 and nine, and I’ve still not dug out. And so I frequently find my activism trying to make whole, make sense of my existence and what happened during that period. And there’s an article that came out in a magazine called Allure, of all things, and it was under their wellness tab and it was called: Why We Can No Longer Ignore the Link Between Suicide and Debt.  

And in our theme song, you know, we have the saying, ‘people are dying.’ And you go through the cities and towns and you see people laying on park benches, and now you see them putting spikes in the benches and making them so that people can’t lay around. They’re criminalizing being poor, but yet they’re making poverty a part and parcel with the entire way that we run our economy.  

An you look at the hopelessness that comes from believing that the only way out is through debt, more debt, more and more debt. And then you get to your debt trap. And similarly, the reason why I found MMT so appealing was understanding that this was a political choice. This isn’t like, this is the way the earth was made.  

This is a political choice. This is a social construct that was created and could be uncreated, if we get creative. Can you talk a little bit about from what you just stated? This is a direct assault on people’s lives. Families break up over this. People lose everything. I just find MMT equals hope and neoliberalism equals despair. That’s literally the sectoral balances of the two ideologies. 

Emma Caterine (00:39:17): 

Yeah, I completely agree. As you mentioned at the beginning, I’m a consumer rights attorney. I sue debt collectors, landlords, and credit card companies – those kind of wonderful companies. And while I really love what I do, I really love helping people fight back in their own little way. What I do.  

I can only help, you know, one out of a hundred of the people that are affected by these things. One out of a thousand, you know, we’re talking, what I do is only helping a very small amount of people who are suffering from the similar effects. And, you know, let me tell you a little bit about my clients.  

My clients are all working class people. My clients are almost, I would probably say like 80% people of color. And of course I’m in New York City. So you’re a wonderful city full of immigrants and very diverse. So that’s that, but we’re certainly not 80% people of color. And a lot of my clients are immigrants, are Spanish speakers who were advertised to in Spanish and then showed up and were given a contract in English.  

You know, we’re talking about people whose only form of income is Social Security. We’re talking about, I would say, close to like 20% of my clients either currently, or were recently diagnosed with cancer. We’re talking about our decision to not invest in society; not publicly invest in society has the consequence of burdening the worst off people in our society.  

And when we talk about, you know, deepening inequality, and I really hope one thing that we can get beyond is just talking about income inequality, because that really doesn’t cover it, especially it doesn’t cover the racist demographics of it. Your last guest Keeanga who is quite the person to follow, but the great recession wiped out Black wealth in this country, literally wiped it out in a very short amount of time.  

And the fact that that’s not spoken about more frequently, that there isn’t more outrage from our supposed leaders about the fact that the wealth of a race of people in our country was wiped out. And we just shake our heads and shrug and say, that’s the way the market works. And of course it’s not the natural way the market works.  

It’s a choice. And it’s specifically a choice by those very leaders who are claiming that they have no idea what’s going on. And so I’d like to transition just so I’m not just being a total Debbie Downer for your listeners. Let’s talk about what sort of other choices we can make, about how we can reverse austerity, reverse the neoliberal paradigm.  

I’m sure many of your listeners are familiar with things like Medicare For All, familiar with a federal job guarantee. Both of these things I’m a huge supporter of. They’re great. They’re an important part of reversing this dynamic, but you know, the reason why I wanted to start with sectoral balances is when we’re thinking about how we’re going to change this economy and make a new economy, we need to think about both sides of the equation.  

So we need to not only think about increasing public investment and public power, democratic power. We also have to think about constraining, restricting and regulating the power of the private sector, particularly of corporations in the private sector and the financial industry. And so you need to do both of these things at the same time.  

And that’s why I’m such a big advocate for the Loan Shark Prevention Act, which again, would set an interest rate cap on consumer lending of 15%. And there’s no ifs, ands, or buts about the relation between these two things. The example that I used in my piece in the Law and Political Economy Blog was transportation in the area of Virginia where I grew up, Hampton Roads.  

My argument is you see in Hampton Roads that we have incredibly disproportionately high rates of subprime auto lending, and then associated secondary markets like title loans. And those dominate the planning of transportation. When people are complaining in Hampton Roads about things like congestion, about things like being able to commute to work, being able to get to their work, or, you know, just not wanting to spend an hour every day commuting, the solutions that are put forth by the political leaders of Hampton Roads is, Oh, we’ll add another lane to the highway.  

The solutions are focused on facilitating this private sector control over what transportation is. And then the flip side of that is you see it actively impeding the public spending alternatives of public transportation, specifically in Hampton Roads, the construction of light rail and the worst subprime auto loans.  

I have a client right now who has a 19% auto loan, which is awful. Those loans would be made illegal in Loan Shark Prevention Act. They would not allow for loans over 15% and it would completely eliminate the title loan industry, which is one of the most vampiric industries in finance that makes people gamble that very means of income for someone in a place like Hampton Roads, where a car is how you get to work, right.  

If you don’t have your car, you’re not getting to work, you’re not making money and you can’t pay off your title loan. And it’s the debt trap. I grew up very familiar with the debt trap for this reason. And the other really important effect of financial regulation, like an interest rate cap that some of my colleagues, Scott Fullwiler and Rohan Grey and Nathan Tankus, they wrote a great piece in the Financial Times where they talked about a whole bunch of issues.  

And this was one of the things that they touched on was that financial regulation can counter the inflation by our public spending proposals like job guarantee, like Medicare For All through offsetting demand, by reducing the lending. It’s completely anathema to how even a lot of progressive advocates of an interest rate cap talk because they’re terrified of what’s called the access to credit argument.  

You know, whenever financial regulation and especially interest rates come up, a finance industry will always argue saying, this will hurt access to credit. Or, you know, when they’re feeling especially toxic, they’ll say this will hurt access to credit for low income communities. This will hurt access to credit for people of color.  

And usually the arguments that are made by advocates and they really frustrate me is no this won’t hurt access to credit. And people need to think beyond that paradigm that, you know, it’s just like with the public deficit, that the conversation right now is public deficit bad. And there’s just a debate about how we deal with the bad public deficit.  

And this is kind of the inverse of access to credit. Good. And that there’s no debate about, well, maybe access to credit isn’t so good. And maybe we should look at why people are using this credit, you know, and if you move outside of the world of lobbyist and so-called experts, it’s very silly on its face, right?  

How many people do you hear saying, Oh, you know, I really wish I had more access to debt. No one, no, insane. People wish they had more money through their income, through their job’s income. They wish they had healthcare. They wish they had childcare and so on and so forth. They wish they had solutions to the social problems that plague them.  

They don’t want debt. And again, there’s no reason other than a political choice that we confront those social problems with private debt rather than public spending. 

Steve Grumbine (00:49:11): 

I want to interject something that stands out to me. You know, you look around at social safety nets and the New Deal, and you look around the world where people actually aren’t fearing going bankrupt over medical problems and so forth. And you realize that after a while trying to grow your stock another quarter point eventually requires that you have new markets cause you’ve saturated the one you’re in.  

And so they start peeling away the fabric of the social safety nets. And it seems like the US’s best export right now is neoliberalism as you look in Australia and you look in UK and other places where they do have robust social infrastructure that is steadily being attacked constantly. But when I talked to Keeanga the other day, one of the things she brought up, and it was one of the core principles of her book, “Race for Profit,” was the concept of predatory inclusion.  

And as we’re talking about access to credit, the idea of taking people that, you know, bloody well are an eighth of an inch away from losing everything. And then saying, here, let’s go ahead and give you a 50% loan on top of it, or let’s give you a house that’s already on the edge of being condemned.  

And Oh, by the way, there’s no risk for us to give it to you cause we’ll just resell it again five minutes later. But you however could lose everything by taking this on, but Hey, you want to be a part of the American dream? Dream big, have an X box. Dream big, have a house. Dream big, here’s another import car that you can buy at a 40% loan rate.  

I mean, it’s ridiculous. And I think what you’re hitting on here is really important. I don’t think people understand the trade off. The economy needs fuel in it, and it’s either going to get it through increased access to credit, which we see has many, many problems, or through government intervention, through public spending and public purpose spending in particular through public money.  

Can you kind of take a second to balance that out for me? Because I think this is a really big takeaway from what you’re saying here. We’ve gone through sectoral balances. We’ve talked about the predatory usery that we see within the loan sharking industry. And we see that people are starting to take notice of it.  

How can you help people to understand that when they are stuck in that paradigm of reducing deficits and so forth, what the impact of that is? Can you pull that together? 

Emma Caterine (00:51:39): 

So for me, I come from a community organizing background, doing labor organizing and feminist organizing, doing, organizing for incarcerated people. So my predisposition is that this is an organizing problem because it’s a political problem and the opponents have the money. They have a lot of the elected officials though that’s slowly changing.  

And what we have is people power. What we have that I think is incredibly important is the experiences of people that can cut through the bullshit. Right? It’s one thing that kind of frustrates me, honestly, with the so called consumer rights movement is it’s a lot of experts, a lot of folks like Elizabeth Warren, who is a very smart person, but, you know, she has her plan.  

And I don’t think the plans of a smart person are going to get us out of this. I think we need a democratic people-led movement to get us out of this and to push back against things like the access to credit argument. Because I think it’s really important to frame this again as a choice — that access to credit is a choice of how social problems are dealt with.  

A choice for private actors to handle it rather than public actors. It’s a choice that creates growth, but also cyclical crises, social inequality, and undemocratic planning. That undemocratic planning prioritizes things that are profitable, like the buildings of playgrounds for the rich and Hudson Yards in New York, for example, instead of revamping New York’s infrastructure to reduce our carbon footprint and try to avoid climate catastrophe.  

For some things, private actors are fine. Of course, you know, I used to be a barista. I don’t think we need to like nationalize the cafe industry, right? Like I don’t think there’s some pressing urge that we need to have the government take control of cute little cafes in Brooklyn. That’s not what we’re talking about.  

We’re not talking about the government running everything. What we’re talking about is basic necessities and social investments, things like education, healthcare, housing, jobs, transportation, and utilities. Why the hell are we letting rich people who have shown that they just want to make themselves more rich, make those decisions?  

Those are, those are our things. You know, the universities are not built by the rich. Our healthcare systems are not built by the rich. Our housing is not built by the rich. Our transportation is not built by the rich, and our utilities are not built by the rich. They’re built by ordinary working people.  

And right now they’re just financed by the rich, because unfortunately we’ve had a government that has for decades shirked it’s responsibility of financing those things instead. And as long as we are allowing the private sector to make the kind of predatory agreements that finance things, these predatory consumer credit agreements, it’s going to be difficult for us to push back against the access to credit narrative — that we need to confront it — because otherwise you see this with example, the federal job guarantee where people are saying right now unemployment is that a historic low.  

Why do we need a federal job guarantee? And you know, the answer to that is that the unemployment being low is being constructed by private actors who do not have the best interest of society in mind. That the employment that is filled our current society is things like Uber, is things like these dystopian, Amazon warehouses, that there aren’t. 

Steve Grumbine (00:56:26): 

Gig economy. 

Emma Caterine (00:56:26): 

Right. Right. Exactly. 

Steve Grumbine (00:56:29): 

I want to ask you a question. To me, this is really important here, at least it is for this Progressive. You know, as I look, I’m very drawn to the DSA message. I’m also very drawn to the Bernie Sanders message, which is not terribly indistinguishable of the DSA message. I am not however, terribly drawn to the Elizabeth Warren “I love markets” message.  

But with that said, one of the things that I have long reviled, and it is another big unfortunate of being an MMT enthusiast, if you will, is that you stop seeing, or at least I have stopped seeing some of the fist in the air take to the streets actions as productive because many of the people that I see have all this energy and if it was harnessed in the right direction, it would be fantastic.  

But the narratives of people like Matt Bruenig and others who are absolutely not in line with economic reality, put us in this position where our friends are our friends on certain issues. And, you know, they really are friends. And, you know, there are comrades and they’re part of our movement, but convincing them to not behave as Republicans or classic market based economists, it’s almost like a bridge too far.  

You hear so many things out there from people who should be brothers in arms against the exact same causes. Cause we have the same ethos. The only thing is that we lack the macroeconomic understanding. How do we message friends and allies within this movement so that they understand the cause and effect of the economics?  

For me, it’s very difficult now that I do know, especially having read some of the most poignant tweets by Stephanie Kelton. She has lost all patience searching for gold coins in a fiat world. And it’s cruel and unusual to try and seek out tax dollars from the rich. When in reality, we can fund all these things with the public purse, these very poignant, direct messages from someone who I believe is absolutely a leader in the space.  

How do we make that reality within such great groups as DSA and others? 

Emma Caterine (00:58:51): 

So I would say first off that, and I’m probably not a good example of this because we’ve gotten into a number of arguments, but folks like Matt Bruenig, there are some issues which I really see eye to eye with Bruenig on, especially public benefits, especially drawing from his own personal experiences of using public benefits growing up.  

He’s done some really important advocacy on that stuff; but Matt Bruenig is, you know, one of these professional middle-class experts that as I said, I don’t really trust them to get us out of this problem. You know, one of the big disagreements that me and him had was his proposal for a universal basic income.  

The first thing that immediately jumped to my mind from my experience as an attorney is that this allowance, you know, given out by the federal government would be immediately sucked out vampircally, by the private sector and particularly by the finance industry. And his response to that was, “Oh, well, we’ll make it, you know, legally exempt.”  

And you know, at the time I think I had three cases where debt collectors were taking Social Security money from my clients, which is legally exempt. Um, you know, it’s a little bit out of touch with reality. And I think that’s one thing that we have to be really careful to avoid is that our arguments are rooted in the material reality, the reality on the ground and how things play out on the ground and that we don’t get lost in policy abstractions.  

And a big part of what that means is that our focus is the masses and not the individuals. That we’re not trying to win over Matt Bruenig or any other individual, regardless of how smart or charismatic or whatever they are. That our focus should be community groups, electoral campaigns that galvanize the public around certain issues, getting organized labor on our side, which I think has been something that we have not done as much as we could, especially, you know, I think they are a natural partner for things like a federal job guarantee and for a regulation on finance.  

I was talking to an activist from Montana who said that their recent success in fighting against payday loans was because their local AFL-CIO said, “Absolutely, we don’t want our members being attacked by these predatory financial companies. We’ll support this.” We need that ground swell of people.  

And while, you know, groups like DSA, which again, a proud member of, I love being a member of DSA. Our role is the agitators, right? We’re not the people who are going to bring about the change. DSA is not going to single handedly, reverse the neoliberal paradigm and create a democratic socialist utopia.  

It’s not going to happen. Our way out of the woods here is that we can agitate the public and agitate the masses around clear and convincing alternatives to the current political choices and political options that are presented to people. And that message has been proven to be extremely effective. There’re things like Bernie Sanders campaign, campaign of Alexandria Ocasio-Cortez, and also through less well known, but just as important, local campaigns that DSA chapters have carried out.  

That’s the hard work of organizing is, you know, one on one conversations, whether it be, you know, canvassing a neighborhood, supporting a particular candidate for office, whether it be conducting . . . I saw, I believe it was in Minnesota, a DSA chapter was doing a community event where they were talking to people about how to handle their medical debt problems.  

And then, you know, circling those people into the fight for Medicare For All. At the end of the day, the people who are going to change things are the people who are most affected. You know, the classic Karl Marx line of the bourgeoisie create their own grave diggers. That the people who have the most to gain from the changing of this system is the people who are most depressed by it.  

And our job again, as the agitators is to essentially hand them the torches and the pitchforks, right? Metaphorically. Don’t get me disbarred. Metaphorical pitchforks and torches. 

Steve Grumbine (01:04:18): 

Now this is fantastic. So let’s close this on, tell us what you’re working on. Tell us where we can find you. 

Emma Caterine (01:04:25): 

Yeah. So first off, I want to give another shout out to the Law and Political Economy Blog, which you can find@lpeblog.org. It’s run through Yale Law School and it seeks to develop a response to the right wing law and economy approach by mapping how legal rules concentrate economic and political power amongst dominant social groups and simultaneously build and expand moods of legal thinking, which embed the economy and social life.  

I especially recommend for your listeners, they had a great symposia on Piercing the Monetary Veil, is a great thing to check out. And then another big thing for the Modern Monetary Network right now is our Job Guarantee Manifesto. You can find that at jobguaranteenow.org. It’s really important that we get lots of great groups and individuals to sign on to this manifesto.  

You know, we’re flexing, right? We’re trying to show how much power we have. And that would be a great tool to take to legislatures, to take to other groups that we want to rope into this fight. So again, job guaranteenow.org. Then my final thing is the Federal Regulatory Agency Office of Comptroller of Currency is currently debating a rule about predatory lending that would allow payday loan companies and other such predatory lenders to quote, unquote “rent a bank.”  

And they would use that to subvert state laws that make payday loans legal by saying, “Hey, this is actually a bank loan.” And it’s another attack by the Trump administration on working people – it’s really crude and awful – but there are very few comments on it so far. And we have been able to stop some of these Trump regulations from getting through due to public outrage. So if you’re interested in submitting a comment about that, just contact me on Twitter.  

My name on Twitter @ EmmaCaterineDSA, Caterine spelled C A T E R I N E. 

Steve Grumbine (01:07:01): 

Fantastic. Let me just say thank you so much for spending the time with us. The entire Modern Money Network is phenomenal. I am always impressed with a class and the level of intellect and just knowledge you guys bring to the table. And you’re no exception. You’ve been a wonderful guest. I hope you’ll join us again soon. 

Emma Caterine (01:07:21): 

Thank you so much for having me. This was great and I hope your listeners will check us out. 

Steve Grumbine (01:07:27): 

Got it. Have a good one. All right, everybody. Thank you so much for joining us. So Steve, with Macro N Cheese. 

 
Ending Credits (00:01:35.280)  

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