Episode 98 – Imminent Collapse with L. Randall Wray

Macro N Cheese – Episode 98
Imminent Collapse with L. Randall Wray
December 12, 2020

 

[00:00:02.040] – Randall Wray [intro/music]

We should be able to figure out a way to allow students to get four years of college without going into debt at all. We allow them – and have for a very long time – to go to high school without undertaking debt. And today, a college education is what a high school education used to be. [music] Isn’t it amazing? The economy is crashing, unemployment is exploding, and the stock market continues to go up?

[00:00:25.050] – Steve Grumbine [intro/music]

Record highs.

[00:00:25.950] – Wray [intro/music]

Isn’t that strange? Well, yeah, because we have this proactive policy bailing out the financial sector, which had not gone into a crisis yet.

[00:01:26.670] – Geoff Ginter [intro/music]

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

[00:01:34.560] – Grumbine

All right, this is Steve Grumbine with Macro N Cheese. Today I have professor from Bard College and Levy Institute, none other than L. Randall Wray, or Randy Wray. Randy has been with us many, many times and I’m just very grateful to have him join us today.

Just to set the stage – obviously, we’ve had an election here recently and the material conditions for the average working people have not changed, and with some of the selections for various positions in the incoming Biden administration, it looks like PAYGO will be the flavor of the day, with people like Neera Tanden running the OMB office and Janet Yellen in the Treasury.

So I figured I would ask Randy, hey, what do you see here? And given the environment that millions are struggling and have not received any support in many, many months, with the CARES Act expiring over the summer and now talk of a watered-down stimulus, it just seemed like the right time to get some insights from someone who really understands the economy. So with that, Randy, thank you so much for joining me today, sir.

[00:02:48.450] – Wray

Sure. Thanks.

[00:02:50.450] – Grumbine

So we were looking at horrible conditions back in March and April, and it looked like we were rounding the corner in that May/June timeframe. And then when the Cares Act expired, it seems like things have really gotten bad and I’m not sure that they’re going to get any better any time soon. What is your take on the current state of affairs?

[00:03:10.940] – Wray

Well, yes. So whatever fiscal stimulus we were getting is going to expire and it’s going to be hard for the new president when he comes in to get things through Congress. So we probably can’t count on a whole lot. So we have a little bit of good news, which is the vaccine.

We’ll see how that goes, but at best, that means we’ve got another six months to deal with before much of the economy is reopened and people get back to work – if their jobs still exist – with so many small businesses unlikely to make it through the next six months. So I think that we’re not going to get enough help from Washington. 

The downturn will probably get worse. And that’s another topic we can talk about as we go along that is going to impact the financial sector, increasing defaults and bankruptcies. So I think a recovery is quite a while off, even if the vaccine works.

[00:04:29.390] – Grumbine

So you and Yeva [Nersisyan] had put out a paper some time ago. It appears that it was completely ignored by the people in Congress. And you see folks like Rasheeda Tlaib and Rohan Grey put forward an ABC Act that had an opportunity to put  – I think it was a thousand dollars a month or two thousand dollars a month in everyone’s pocket. That was ignored.

You saw the watered-down second stimulus, which was still not great – at one point eight trillion – blocked and ignored. Nancy Pelosi blocked people like Ro Khanna from going forward with that. And now here we are. Most recently, they put forward a quote/unquote “compromise bill.” I guess Joe Biden encouraged them to negotiate something. And now this compromise bill somewhere in the vicinity of 900 billion. Not 1.8 trillion – 900 billion.

And Nancy Pelosi’s response to why that happened was, hey, we’ve got a new president coming in. So now with a vaccine coming, now we can negotiate. And it seems kind of tough for people who are not eating right now and maybe not housed well and not clothed well as we go into the winter season, that we would suddenly be talking about instead of 600 dollars a month payments or 600 dollar payments, we’re down to 300 in this new bill. What do you see the material conditions for the poor being like under this? What do you envision here?

[00:06:03.210] – Wray

Well, we’re on the verge of country-wide evictions from rental units and foreclosures on mortgages. So we’ve been forestalling that and that is expiring soon. So if that’s allowed to happen, we tumble down. The downturn will just pick up speed if that does happen. But let me say, 900 billion sounds so familiar because when the global financial crisis hit, remember, we got 800 billion out of the Obama administration.

And when asked, “Why is it 800 billion?”  The answer from the administration was, “Well, it’s not quite a trillion. A trillion’s too big.” That’s a scary number. So we settle for 800. And now we’re going to settle for 900 when we need trillions. Now let me say I favor targeted spending. I did not favor the Trump checks, which I predicted were just part of his campaign.

We’re all going to get a check from Uncle Trump whether we need it or not. And he enclosed a letter with it: this is your present from the White House. It didn’t quite work for him, but it came close and I never supported that. There are many, many people who do not need these checks, and it makes the number scarier. I’m not against it because we can’t afford it – because Uncle Sam can afford it.

I’m just saying this is a very inefficient way for the government to spend. We ought to be targeting it to the people who have lost their jobs. We ought to be helping people with their rents and their mortgages. Postponing is not good enough because you’re eventually going to get that bill and the average American, maybe if their job came back, they could make up one month’s rent, but they can’t make up six months rent. That’s just not feasible for average Americans.

So what we need is debt relief across the board. I think Biden has been somewhat positive to student loan debt relief, which is great. We need that. It’s 1.4 trillion or so. But now we’re going to need mortgage relief and we’re going to need renters’ relief, too. So I don’t know what that total will be. Let’s say it’s another trillion. And a lot of people are not going to return to jobs soon and maybe are going to be part of the long term unemployed, so we need to ramp up unemployment compensation.

I see all of these as being targeted spending. And, of course, you know, our favorite targeted spending, which is the job guarantee, that would be nice if we could do that. There’s no indication that this administration is going to be pushing for that. So that’s sort of a dream. But if we can’t get a job guarantee, then at least we need to ramp up unemployment compensation.

And we need to greatly expand the percent of the labor force that will qualify for it, because the problem is that probably less than 40 percent of the people who lose their jobs will even qualify for the usual unemployment because of the restrictions on it.

[00:09:37.270] – Grumbine

Right.

[00:09:37.930] – Wray

A lot of our gig workers, but it goes way beyond that. It’s not just gig workers. There are many other people who lose their jobs who haven’t been in the job long enough and so on. Or that’s part-time. So we need to greatly expand the pool of who can get unemployment compensation.

[00:09:56.440] – Grumbine

It’s interesting, you raised the student debt issue and there was a huge push a week or so ago – somewhere in the 800,000 signature range – to cancel student debt. The Biden administration has floated the idea of knocking 10,000 dollars off of everyone’s student debt. Yeah, clearly, that’s not real big relief. We’ve seen the studies – I believe you were involved in a great study that showed the benefit of cancelling student debt.

[00:10:30.400] – Wray

Well, actually, I was not involved in that one. But yes, that came out of the Levy Institute.

[00:10:35.350] – Grumbine

Yes, OK. Was it Pavlina and Stephanie? I know Stephanie was putting it around.

[00:10:40.150] – Wray

Stephanie, yeah.

[00:10:40.900] – Grumbine

Yeah. It’s a shame because 10,000 dollars, these are like goodwill gestures, on a veneer, but in a substantive way the average person that has student debt, 10,000 dollars of long term relief isn’t really going to help them unless it’s in terms of postponing any payments for a number of years. I don’t know how that really substantively helps people. It seems like an empty gesture to me. What would be the impact of just a 10,000 dollar waiver, if you will, on student debt?

[00:11:12.640] – Wray

Well, I don’t know what the average is. I think it is all in that Levy report, but let me say the center-left people think that we shouldn’t go overboard with this because a lot of these students have become doctors and lawyers, and they have high incomes and we shouldn’t reward them unnecessarily with forgiving the student loans because, after all, they got a great education and now can afford to repay. So I know that there’s that feeling.

But if you look at the data, actually a lot of the most heavily indebted people are people of color who are discriminated against in labor markets and because they tended to come from lower-income families, they took on more debt in order to get a degree. And now in the labor markets, even if we were not in a pandemic, it’s harder for them to get the high paying jobs. So I think the perceptions about student loans need to be changed.

That’s what the Levy report was trying to do. And I’m a little hopeful that that message will get through – that the heavily indebted people are not all doctors and lawyers. There tends to be an inverse relationship between the amount of debt and prospects in the labor markets. So we really do need to ramp up that number. I would just encourage everyone to go to the Levy Institute and read that report or the proposal to forgive all of it, and moving forward, we need to provide college education that doesn’t require any student debt.

Bernie was supporting that, and many other progressives are. We should be able to figure out a way to allow students to get four years of college without going into debt at all. We allow them – and have for a very long time – to go to high school without undertaking debt. And today, a college education is what a high school education used to be. So we really need to provide fully covered tuition and room and board for those who need it to get college educated.

[00:13:34.300] – Grumbine

The last big financial crisis, the big one, ’08/09, you saw a lot of older workers caught in the in-between mode where they weren’t old enough to retire, yet they were too old to find another job that was commensurate with what their obligations in life had become. So many of them went back to school and took on student debt one more time to quote/unquote, “reinvent themselves” for a second career that isn’t really there. And I think that people often forget about the impacts.

They don’t tie together the tragedies and timeline. They just assume in this moment that, “Hey, you spoiled brat, you went to college. Why are you complaining?”  And I think that the fundamentals of understanding the impact that so many that lost long-time careers, these people are stuck with huge debt once again, and short earning potential. They’re on the wrong side of that “earning curve” in their lifetime. I’m just curious. I’ve read that report. What is your take on that? Do you think that that’s being considered?

[00:14:40.540] – Wray

Well, there are two related tragedies. So one is: you go to college and you come out into an economy like the one that we have now. OK, so that’s one. That’s not your fault. And there were many students who came out, let’s say, in 2009, same situation. So you go to college, you incur this debt, and you come out and we’re in the deepest recession since the Great Depression. That’s not your fault. So that’s the first tragedy.

The second tragedy is that a lot of those so-called colleges were scams. So everyone knows about Trump University, which was just a pure scam. But there were scams running all over the country. And I don’t remember the exact numbers, but a very high percentage of that student loan debt was taken on by people who never graduated with a degree or with a degree that mattered.

In other words, everyone knew that it was from a university that was just running a scam. So that’s the second tragedy. They actually did not get the education even though they took on the debt.

[00:15:53.560] – Grumbine

Wow. Unbelievable. So with that in mind, workers in this country have almost zero protections. I think we’re at four percent unionization in the private sector. And I think it’s 33 percent in the public sector, led by teachers unions and nursing unions and the like. So workers have almost no protections whatsoever. On top of that, we have no meaningful safety net. We have no health care. College is ridiculously expensive. It’s like another mortgage payment.

There’s literally nothing here that screams this is a good time to be an American citizen. I know that friends within the community, Steve Keen and Michael Hudson, have long since been calling for a debt jubilee in their own way. You had just mentioned really major debt relief is a huge thing.

What do you think the temperature is in this country? I know the centrists tend to avoid these sorts of subjects, but in terms of real numbers here, what do you think the impact of a debt jubilee or something akin to that might be to the country? What would that do?

[00:17:05.610] – Wray

Well, let me just add to your list of things that we don’t have. So we don’t have labor union representation. I know a pretty high percentage of the public sector is unionized, however, they typically don’t have the right to strike. And without a right to strike, you are going to be pretty weak. So it’s even worse than it sounds.

But the other thing we don’t have is a Labor Party, right? So other countries have much higher unionization rates and they also have a Labor Party. We don’t have that. The Democratic Party used to sort of represent labor interests, but it’s clear that they don’t. At least from the time of Clinton, they’ve been running away from the working class.

They have turned all of their interests, almost, to Wall Street. It’s just become the party of Wall Street. So not only do we not have the labor unions, there’s no representation for workers in Washington either. So just wanted to add that to your list.

[00:18:16.080] – Grumbine

No, it’s good. I agree.

[00:18:19.620] – Wray

So the debt jubilee, I can’t remember the numbers, but I know that Michael Hudson has done the research on this – looking at what percentage of the average workers pay is locked up in debt and rent and health care and so on – so that we can finally get down to what they can actually spend. And it’s a tiny, tiny portion. Virtually all of your income is already earmarked to pay your utility bills, to pay your credit card debt, your student loan debt, your mortgage debt, your car debt, so that there’s very, very little leeway.

And this is why when you do surveys and you ask an average American family, could you possibly come up with four hundred dollars to meet an emergency expense? And they say, no, we couldn’t do it. That tells you how little discretionary income they’ve got. So, yes, I was talking about there are overdue rents, the overdue mortgages, the overdue electrical bills, the overdue gas bills, overdue water bills. I don’t know what that number is, but it’s got to be just huge.

Economic growth – rapid economic growth, rapid creation of jobs – is going to help a bit, but when you have that huge debt overhang, you’re trying to fight your way through that. Even once we start to recover, that’s really going to hinder the recovery. People are going to be paying their overdue bills. They aren’t going to have any discretionary income to go out and start spending. And those overdue bills are going to be going to the landlords, the banks.

And I’m not trying to be completely hostile to the landlords, OK, because they’ve got overdue mortgages, too, but just on an average basis, these payments are going to be going to much higher income people, again, on average. Not all landlords have high incomes. But it’s going to worsen the distribution of income and wealth, which already is probably at a record level – 1929 being the last time we approached inequality like we have now.

So as this pandemic has unfolded, we’ve seen inequality increasing. So everyone knows, you know, the money’s going to Amazon and to the tech sector, to the people who are already billionaires several times over. And the problem is that in the recovery, it’s going to continue going in that direction if we’re forced to pay all of those overdue bills. So we’ve got a real problem and we need – not a moratorium on debt – but debt relief or debt forgiveness, says Michael Hudson.

He has been advocating for a long time. Michael has looked back in history, and when you see debts growing faster than income does, which generally happens because the interest rate is greater than the growth rate of the economy, then you get this rising inequality and this rising debt load on the majority of the population, which hinders growth and creates a completely unsustainable economy. And when that happens, there is some kind of collapse and change. So we may be headed for something like that.

[00:22:15.040] – Grumbine

That’s just scary. It’s terrifying. One of the questions that I guess really screams out is that we have a moral hazard that everybody points to frequently. Any time we talk about helping rank and file Americans, the term socialism comes up. You’re going to be on the government teat, irresponsibility, all these very negative connotations, putting it on to the victims of this predation.

And it is predation. I guess my question to you is this: as we look back at 1929, which you raised, there’s a guy named Ferdinand Pecora, who went after the Wall Street bankers. He went after them and tore after corruption. And I know another cohort of yours, Bill Black, has been hot and heavy on this for a long, long time.

[00:23:07.990] – Wray

Yeah.

[00:23:08.410] – Grumbine

And you look at the moneys that went through the Cares Act, the different folks that are bailed out, how the Wall Street economy is, quote/unquote, booming on paper, the average person is living in the most precarious of circumstances.  What do you think are the chances of a modern-day Pecora?

Do you see something like that being a key to getting us back to a more sustainable, sane society? Do you think we can push for any of these bold initiatives that we try for, like a job guarantee, or a Green New Deal, or student debt relief without getting rid of the corruption? Do you think corruption is standing in the way of that or do you think we can do it aside from that, in parallel?

[00:23:52.070] – Wray

Well, very, very tough. I think it’s always amusing when people raise the moral hazard argument because it’s absolutely true that we have massive moral hazard that benefits the top one percent and there’s almost no complaints about that at all. I mean, and here is Trump, who is going to pardon his family members, perhaps himself.

He has already pardoned people who were convicted of very serious crimes, trying to help him. There’s a big moral hazard there. Much more serious than the moral hazard of, say, providing decent housing to a homeless person. And people say, oh, no, no, we shouldn’t do that because that encourages moral hazard. I mean, everyone’s going to become homeless so they can get a free house, right?

I mean, I’m not talking about your listeners, obviously, but lots of Americans are worried about the moral hazard of helping people who are homeless or jobless and now buried under student loan debt and other kinds of debt when the true moral hazards, the dangerous moral hazards, are not really under discussion.  So, yes, we need something like Pecora, the Pecora… oh I can’t remember what they were called…

[00:25:18.930] – Grumbine

The Pecora Hearings.

[00:25:20.070] – Wray

Yeah, we obviously need something like that. And it’s easier to sell that when you’re in the depths of the crisis. And so Bill Black was… And I co-authored some things with him when the global financial crisis hit, because that was the time when we maybe could have done something about it.

Instead, the Obama administration ramped up the moral hazard by rewarding all of the behavior that had caused the global financial crisis, unlike what President Roosevelt had done, which is take the opportunity to completely reform the financial system, to regulate and to outlaw many of the behaviors that had led to the Great Depression. So we didn’t do any of that.

Now we are, I think, probably on the verge of another financial crisis because for the most part, financial institutions went back to doing what they had been doing in the run up to 2007 – again, because they were not punished in any significant way. And because we had this very long period of recovery which, over the course of a recovery, behavior tends to get worse, financial fragility tends to grow.

This was all the theory of my professor, Hyman Minsky. So it’s sort of natural that that would happen. And then we got this pandemic that hit. And part of the response, which we haven’t talked about so far, went way beyond sending the checks to adults. Part of the response has been to try to bail out financial institutions sort of in a prospective way. That is, before they actually experience a crisis, we start funneling funds to them.

[00:27:23.960] – Grumbine

Wow [laughs]

[00:27:23.960] – Wray

And so you read the Bloomberg or The Wall Street Journal and “oh, isn’t it amazing? The economy’s crashing, unemployment is exploding and the stock market continues to go up.”

[00:27:34.070] – Grumbine

Record highs.

[00:27:35.090] – Wray

“Isn’t that strange?” Well, yeah, because we have this proactive policy bailing out the financial sector, which had not gone into a crisis yet. So anyway, things have continued to get more fragile. And when people do start defaulting on their debts – default rates are rising, I just saw credit card debt, for example – so default rates are rising, and when the prospects become pretty obvious that defaults are going to continue to rise and get to unbearable levels.

In terms of looking at it from the point of view of financial institutions, what they can handle, we’re going to have another financial crisis. So the opportunity will come up again. Unfortunately, we have virtually replicated the Obama administration so far. I mean, in terms of what Biden has been proposing, what you see is nominee after nominee looks like it’s going to be somebody from the Obama administration. So that doesn’t give you a whole lot of hope that we’re going to do it much differently from the way Obama did.

[00:28:52.930] – Grumbine

Right.

[00:28:53.680] – Wray

It’s hard to make forecasts like this because there is just so much uncertainty about the pandemic and then about the depths of the real economic crisis that will spill over into a financial crisis this time around, which is different from the last one.

Because the last one began as a financial crisis that then begot an economic crisis and high unemployment. This one is completely turned all the other way around where first it’s a health crisis, then it’s an economic crisis, and then eventually it’s going to be a financial crisis. So there’s lots of uncertainty about this, but I will be very surprised if we get through this without a major financial crisis.

[00:30:01.890] – Intermission

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[00:30:38.610] – Grumbine

Let me ask you, the Panama Papers came out. We obviously realize there’s all these offshore havens and so forth, and I know that, quote/unquote, “taxes don’t necessarily fund spending,” but they do create a demand leakage. And with the net importer status, plus lots of offshoring of moneys, I am curious, what does that do to the economy substantively? Not just that it’s unfair, but how does that impact the economy? How does it impact decisions being made by our government and other financial institutions?

[00:31:15.490] – Wray

Well, there is so much inefficiency that’s created through tax avoidance, which is legal, and evasion, which is illegal, and these offshore centers are handling the spoils of that. But just their existence puts downward pressure on regulation and taxing within countries because they know that every time you impose a new regulation, you increase the incentive to try to escape it by offshoring.

So there’s a very bad dynamic there. It sets up bad incentives within countries and it fuels corruption and that spoils the institutional arrangements within countries, makes it very hard to get things done that need to be done. Now, the one possibly good thing about the pandemic is that it has exposed weaknesses in global supply chains.

And I think businesses are starting to rethink whether it really makes sense to outsource to countries that have lower wages. And I don’t think it takes a genius to figure this out because labor costs are a relatively small part of the total costs of producing and selling a lot of our output. The wage share in the United States has been going down for years.

So they can afford to pay a little bit higher wages, keeping the production within the US so that they’re not exposed to the kinds of disruptions you can get from this pandemic. But we’ve seen disruptions before. You can have an earthquake, you’re going to have a tidal wave and wipe out production in Japan. So there could be some movement back to the United States. But going after the offshore banking centers probably takes some kind of international coordination.

It’s going to take more than the pandemic, I think, to resolve that. I’m not an expert in that. Bill Black would be a much better person to talk to. I once was invited to a conference of these experts in offshore corruption, some of the people who were involved in that exposed the Panama Papers. And it’s just fascinating what they do, identifying the individuals and going after them and suing them and getting big returns in court. But it’s just not something that I studied closely.

[00:34:14.990] – Grumbine

No. I understand completely. I guess one of the things that jumps out at me, we were talking about the incoming Biden administration before we started the show here, and one of the things that came up was Janet Yellen has been named to the Treasury. Janet Yellen has a history of being a deficit hawk, and fearful of NAIRU, and jumping the gun and making bad calls.

I don’t know if she’s learned any lessons from that or if she’s been paying attention to Stephanie’s book or anyone else’s work here. But she’s now going to be in charge of Treasury. And then you’ve got Neera Tanden, who is a thorn in the side of every Berner that ever supported Bernie from 2016 to 2020. And she’s been placed in top of OMB.

Now, I am interested in understanding what impact, if any, can you think of someone like a Neera Tanden, who I know you’re not necessarily familiar with, but her position is one of firm PAYGO. She is a clear PAYGO neoliberal of the Clinton variety. What does that do to any kind of progressive bills or any kind of legislation that would benefit the people?

[00:35:34.790] – Wray

Yeah, unfortunately, OMB has for a very long time been enforcing PAYGO, so in a way this is not a change. We were hoping for something better. So the idea is that if you’re going to propose any new spending program, you’ve got to “pay for it” (in quotes) through either a tax increase or a spending cut somewhere else. It’s pretty crazy. Not necessary at all, as we know.

You pay for government spending by crediting a bank account. You don’t pay for it by cutting spending somewhere or by increasing taxing, but this is the way that the CBO has been operating for some time and, yes, I imagine that she is going to try very hard to do that. We were hopeful that if Bernie had won that that would have been the end of that.

And when the pandemic hit, it sort of looked like maybe there’s an opening here, too, because it’s clear that we were not paying for the stimulus checks from Trump or the various paycheck protection and the business payroll protection. We didn’t pay for those with tax increases or spending cuts elsewhere. Over in Europe, they also abandoned any pretense at sticking to Maastricht criteria.

So we were pretty hopeful that the message had gotten through that you pay for things by allocating spending in your budget for them and you don’t need anything more than that. On Yellen, it is a surprising choice. I would say the Fed was also a surprising choice for her. I think, as far as a mainstream economist goes, she’s a reasonably good labor economist.

I think she does care about employment and wages and would like to see higher wages for workers.  I haven’t seen anything from her that indicates she’s explicitly anti-union either. But clearly there was nothing in her background that would make you believe that she knew a lot about money and banking. And there’s no more in her background that would make you think she knows much about financing government spending.

I imagine everything that she thinks she knows about it is just the straight old textbook that, yeah, you’ve got to take in the taxes and spend those. So all the money comes from the population. The government’s got to go out and get people to turn their money over to the government so the government can spend it, which is all completely backward.

But the Treasury is very important for the financial sector, for Wall Street, and I just don’t think that there’s much evidence that she’s up on all of that, even in a straight orthodox way, so it’s a strange choice.

[00:38:49.420] – Grumbine

With that in mind, the power of the Treasury and OMB are two pretty straightforward government entities, we don’t know who Biden’s selection for the Fed will be. As of now, Powell is still in there. But what do you envision the world to look like, though, with people who are neoliberal? Is this really just a continuation of Obama-Clinton type policies? Or do you have any feeling whatsoever from your discussions with others, maybe, that there is a change afoot? Or do you think this is just the old playbook?

[00:39:23.630] – Wray

I think that they are going to start out pretty much with the old playbook. If what I said earlier turns out to be true, that the recovery is going to be very slow, very weak, and we’re likely to have a financial crisis, they’re going to be confronted with severe problems that cannot be resolved with the old playbook. And no matter what they do, the federal government deficit is going to be very large.

It may well approach 20 percent of GDP, which for orthodox economists is an extremely scary number. We would be getting close to World War II levels of deficit-to-GDP ratios. So I don’t think they can stick to the playbook. PAYGO is not going to work. The tax revenue is not going to be there. And state and local governments could be in even much worse shape. They’re going to need help. And we hear the Republicans saying, no, nothing.

We’re not going to help state and local governments at all. They are extreme. But the problems are going to be unbearable for state and local governments. We’re talking about wholesale layoffs of teachers and police. And what are you going to do about the prisons, which are a major expense for state and local governments? So I just don’t think they can stick to the playbook. So, yes, I think you’re right, they will try to go by the playbook, but I don’t think they’re going to be able to do it.

[00:41:04.910] – Grumbine

With climate change – climate change isn’t really one of those sorts of things that’s waiting for us to negotiate a proper Republican-Democrat agreement here. What is your take on that? I know that we’ve been pushing for a Green New Deal, but I don’t really think this administration has the chops for that. What do you think’s coming with that? How do you think that will play into forcing their hand?

[00:41:27.070] – Wray

Well, I think if Biden had to do one progressive thing, I think he would be more inclined to do something for the environment. So he’s been talking good talk. Yes, he will never endorse Green New Deal because that has become something associated with progressives, but pushing for alternative energy and getting off fossil fuel or – getting off is too strong, sorry – reducing the use of fossil fuels.

I think he may well go in that direction as a way to placate progressives because he’s probably not going to do most of the other things that progressives want. So I’d be a little bit more optimistic there. Now, given that we’ve got only about a decade, it’s not going to be enough. So there’s still good reason to be very pessimistic about the future of humanity.

[00:42:27.720] – Grumbine

Hmmm…

[00:42:29.020] – Wray

Well, I mean, if we’ve got four years of doing a bit around the edges, that means the six years after that, we’ve got to ramp things up to very high levels to achieve the greening transformation that we’ve got to do. There’s one related thing, which is that it takes international cooperation. And of course, Biden’s going to be an improvement over Trump with international cooperation on things like the Paris Agreement.

But on the other hand, the other huge country in the world, which also contributes a lot to the carbon load, is China. And we haven’t heard anything very positive coming out of Biden and the likely members of the administration about trying to reduce the heat that has been building up about China.

Remember the Democratic convention last time around? I think I was listening to it on the radio and I was surprised to find out that Russia and China were enemies of the United States, according to the Democratic Party. This wasn’t the Republicans.

[00:43:45.240] – Grumbine

I know, man.

[00:43:46.170] – Wray

It was speech after speech of the Democrats telling me that China is my enemy. And that’s only gotten worse. And Biden is worse on that issue than probably most of the other presidential candidates. So that is scary, because if the attention gets diverted to building up another Cold War, not only is it the opposite of cooperating to reach this common goal of reducing carbon emissions, but just the build up of the war machinery is going to move us in the wrong direction.

So our focus will be wrong, the need for cooperation is not going to be met, and if we start building up the war machine, then we’re going to be contributing to climate catastrophe that way, even if we don’t use the weapons. So that’s maybe almost as scary as the climate catastrophe that we face.

[00:44:49.870] – Grumbine

That’s just terrifying. I did speak with Steve Keen previously, and he painted a very gloomy picture indeed. One of the things that I was curious about, Biden has come in saying that he’s going to reinstate the individual mandate for the ACA.  And I thought, that’s just ridiculous. That’s just basically a tax that hurts the poorest of us the most. They’re coming in with that. They’re going to save the ACA by reinstating the individual mandate. What are your thoughts on that?

[00:45:23.980] – Wray

Well, I think it’s crazy. Marshall Auerback and I wrote about it 10 years ago. It sure seems unconstitutional to me. I know the Supreme Court sort of finessed that. But you should not be forcing people to turn over part of their paycheck to the private insurance sector of the economy. So I’m absolutely opposed to that. I also don’t like Obamacare. It’s not the right approach. 

So, yeah, it’s a movement in the wrong direction. It just increases the opposition to Obamacare and the whole idea that we’re going to force people who don’t want health insurance – and many of them are making a rational decision that “Hey, I’m young, I’m healthy, and I don’t want to purchase health insurance.” It’s rational in a narrow sense.

I’m not saying that going without access to health care is a good idea, but you can understand why people would make that decision. And the whole idea of forcing them to do it is because, you know, it’s a bad deal for them, but they’re going to subsidize people who are paying too little relative to the costs of taking care of them. It’s so bizarre…

[00:46:48.590] – Grumbine

Placing the subsidies on the little people. Peak neoliberalism.

[00:46:54.290] – Wray

Low income people and or young people, because there could well be young people who can afford it, but they make a rational choice that they’ll pay out-of-pocket for health care if they need it. So it’s bad all the way around, so we could call it a subsidy for the high cost people, but what it really is, is a subsidy for the private health insurance system, which is not a good way to provide health care. Car insurance? OK. Fire insurance? OK.

We price the premiums based on the actuarially sound probability of risk of loss. But health care is a completely different sort of thing. Everybody needs health care at certain times and these are not catastrophes. Having a baby is nothing like a hurricane hitting your house. Often it’s planned and desired, but mothers and babies need care and so any rational society would just provide that. So anyway, there’s very little health care that really meets any of the conditions that you normally would apply in the insurance sector.

They’re not insurable loss of risk, so it’s just not a good way to do it. And no other country in the world uses private for-profit health insurance to the degree we do. There are systems that do have a role for private insurance, but generally it is more of a charitable institution, not a for-profit institution. So we are very unusual. We can go through the history of why we got to this unusual place. It was bargaining between labor unions and the employers in the early post-war period. And then we can ask, well, why didn’t we have universal health care already? And the answer there is racism and slavery.

[00:49:07.020] – Grumbine

Typical.

[00:49:09.360] – Wray

The US is extremely exceptional because of our history of slavery in health care, but in many other areas too. So the rational thing to do would be to ditch the whole thing and go for universal health care coverage like every other rich, developed capitalist country in the world has.

[00:49:32.110] – Grumbine

Absolutely. I would love to see a complete national health service for us to have in this country. It’s so frustrating to think about the fact that your health is a profit motive for somebody else, and that just drives me nuts.

[00:49:48.460] – Wray

Oh, can I just add one thing on that?

[00:49:50.110] – Grumbine

Yeah, please.

[00:49:51.280] – Wray

The pandemic has exposed problems both with the insurance, but also the care delivery. Right? So the insurance – all these people have lost their jobs and they lost their health care at the same time. So that’s a problem with providing it through the workplace. Then the people losing their jobs can’t afford even the subsidized Obamacare insurance.

And then finally, our private for-profit health delivery system was shown to be completely unprepared and inadequate because the for-profit nature of it requires them to minimize costs, and the way they do that is by having no excess capacity, no inventory, no extra masks, no extra ICU beds and so on and so on. All of that is because it’s for profit. So that if a pandemic hits, there’s no way that the system could handle it. So all of that does go back to the for-profit nature of both the way we pay for it, but also the way we deliver it.

[00:51:03.930] – Grumbine

I appreciate that. We are at the stage where I think I literally can’t see anywhere where there’s a positive thing going, and with a pandemic here, you would have thought we’d have universal health care yesterday. You would have thought we’d have had a job guarantee yesterday. You would have thought we would have had pandemic relief without even a thought yesterday. But instead, we’ve still got mass homelessness. We’ve got no relief in sight.

And health care is just as abysmal as it can possibly be. And yet we get rid of Trump and people are ready to go back to sleep. The brunch crowd has checked out of the station and the rest of us are left once again, a very small minority screaming and yelling, we want to save the world. And they’re just marching right along as if we’re insignificant.

And I think that that’s very frustrating for a lot of people, especially progressives. Anyway, with that, Randy, I want to thank you so much for joining us today. It means the world to me. I absolutely appreciate your work, your effort, your time. Can you please just let us know what you’re working on right now, if anything, and where we might be able to find your work?

[00:52:12.330] – Wray

Yeah. My latest piece, with a guy named Ed Lane, is a proposal to eliminate the corporate profits tax. Now, that might sound bizarre for a progressive, but I would encourage people to take a look at it at the Levy Institute. So, that was the latest one and then several pieces with Yeva, you mentioned that earlier, I think, on the pandemic and the Green New Deal and how to pay for those things.

[00:52:42.580] – Grumbine

Fantastic. By the way, we did a show, it was maybe two years ago, where we talked about eliminating the corporate tax, by the way, so that is not lost on me.

[00:52:53.740] – Wray

It took a long time to finish that paper. [laughs]

[00:52:57.460] – Grumbine

Well, look, thank you so much for taking the time with us. Folks, this is Steve Grumbine, Randy Wray, Macro N Cheese. We’re out of here.

[00:53:30.100] – End Credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Mindy Donham. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives