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    Supreme court, Facebook, Fed: three horsemen of democracy’s apocalypse | Robert Reich

    OpinionUS supreme courtSupreme court, Facebook, Fed: three horsemen of democracy’s apocalypseRobert ReichThese unaccountable bodies hold increasing sway over US government. Their abuses of power affect us all Sun 10 Oct 2021 01.00 EDTLast modified on Sun 10 Oct 2021 05.22 EDTThe week’s news has been dominated by the supreme court, whose term began on Monday; the Federal Reserve, and whether it will start responding to inflation by raising interest rates; and Facebook, which a whistleblower claimed intentionally seeks to enrage and divide Americans in order to generate engagement and ad revenue.‘Facebook can’t keep its head in the sand’: five experts debate the company’s futureRead moreThe common thread is the growing influence of these three power centers over our lives, even as they become less accountable to us. As such, they present a fundamental challenge to democracy.Start with the supreme court. What’s the underlying issue?Don’t for a moment believe the supreme court bases its decisions on neutral, objective criteria. I’ve argued before it and seen up close that justices have particular and differing ideas about what’s good for the country. So it matters who they are and how they got there.A majority of the nine justices – all appointed for life – were put there by George W Bush and Donald Trump, presidents who lost the popular vote. Three were installed by Trump, a president who instigated a coup. Yet they are about to revolutionize American life in ways most Americans don’t want.This new court seems ready to overrule Roe v Wade, the 1973 ruling that anchored reproductive rights in the 14th amendment; declare a 108-year-old New York law against carrying firearms unconstitutional; and strip federal bodies such as the Environmental Protection Agency of the power to regulate private business. And much more.Only 40% of the public approves of the court’s performance, a new low. If the justices rule in ways anticipated, that number will drop further. If so, expect renewed efforts to expand the court and limit the terms of its members.What about the Fed?Behind the recent stories about whether the Fed should act to tame inflation is the reality that its power to set short-term interest rates and regulate the financial sector is virtually unchecked. And here too there are no neutral, objective criteria. Some believe the Fed’s priority should be fighting inflation. Others believe it should be full employment. So like the supreme court, it matters who runs it.Elizabeth Warren tells Fed chair he is ‘dangerous’ and opposes renominationRead morePresidents appoint Fed chairs for four-year terms but tend to stick with them longer for fear of rattling Wall Street, which wants stability and fat profits. (Alan Greenspan, a Reagan appointee, lasted almost 20 years, surviving two Bushes and Bill Clinton, who didn’t dare remove him).The term of Jerome Powell, the current Fed chair, who was appointed by Trump, is up in February. Biden will probably renominate him to appease the Street, although it’s not a sure thing. Powell has kept interest rates near zero, which is appropriate for an economy still suffering the ravages of the pandemic.But Powell has also allowed the Street to resume several old risky practices, prompting the Massachusetts Democratic senator Elizabeth Warren to tell him at a recent hearing that “renominating you means gambling that, for the next five years, a Republican majority at the Federal Reserve, with a Republican chair who has regularly voted to deregulate Wall Street, won’t drive this economy over a financial cliff again.”Finally, what’s behind the controversy over Facebook?Facebook and three other hi-tech behemoths (Amazon, Google and Apple) are taking on roles that once belonged to governments, from cybersecurity to exploring outer space, yet they too are unaccountable.Their decisions about which demagogues are allowed to communicate with the public and what lies they are allowed to spew have profound consequences for whether democracy or authoritarianism prevails. In January, Mark Zuckerberg apparently deferred to Nick Clegg, former British deputy prime minister, now vice-president of Facebook, on whether to allow Trump back on the platform.Worst of all, they’re sowing hate. As Frances Haugen, a former data scientist at Facebook, revealed this week, Facebook’s algorithm is designed to choose content that will make users angry, because anger generates the most engagement – and user engagement turns into ad dollars. The same is likely true of the algorithms used by Google, Amazon and Apple. Such anger has been ricocheting through our society, generating resentment and division.US supreme court convenes for pivotal term – with its credibility on the lineRead moreYet these firms have so much power that the government has no idea how to control them. How many times do you think Facebook executives testified before Congress in the last four years? Answer: 30. How many laws has Congress enacted to constrain Facebook during that time? Answer: zero.Nor are they accountable to the market. They now make the market. They’re not even accountable to themselves. Facebook’s oversight board has become a bad joke.These three power centers – the supreme court, the Fed and the biggest tech firms – have huge and increasing effects on our lives, yet they are less and less answerable to us.Beware. Democracy depends on accountability. Accountability provides checks on power. If abuses of power go unchallenged, those who wield it will only consolidate their power further. It’s a vicious cycle that erodes faith in democracy itself.
    Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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    The $2,000 stimulus cheques alone won't work – the US needs better infrastructure

    With the Democrats’ stunning sweep of Georgia’s two Senate run-off elections giving them control of both houses of Congress as of 20 January, the idea of $2,000 stimulus cheques for every household is sure to be back on the agenda in the US. But although targeted relief for the unemployed should unquestionably be a priority, it is not clear that $2,000 cheques for all would in fact help to sustain the US economic recovery.One post-pandemic scenario is a vigorous demand-driven recovery as people gorge on restaurant meals and other pleasures they’ve missed for the past year. Many Americans have ample funds to finance a splurge. Personal savings rates soared following the disbursement of $1,200 cheques last spring. Many recipients now expect to save their recent $600 relief payments, either because they have been spared the worst of the recession or because spending opportunities remain locked down.So, when it’s safe to go out again, the spending floodgates will open, supercharging the recovery. The Fed has already promised to “look through” – that is, to disregard – any temporary inflation resulting from this euphoria.But we shouldn’t dismiss the possibility of an alternative scenario in which consumers instead display continued restraint, causing last year’s high savings rates to persist. Prior to the Covid-19 crisis, some two-thirds of US households lacked the savings to replace six weeks of take-home pay. Having reminded Americans of the precariousness of their world, the pandemic is precisely the type of searing experience that induces fundamental changes in behaviour.We know that living through a large economic shock, especially in young adulthood, can have an enduring impact on people’s beliefs, including those about the prevalence of future shocks. Such changes in outlook are consistent with psychological research showing that people rely on “availability heuristics” – intellectual shortcuts based on recalled experience – when assessing the likelihood of an event. For those parents unable to put food on the table during the pandemic, the experience will establish a heuristic that will be hard to forget.Moreover, neurological research shows that economic stress, including from large shocks, increases anabolic steroid hormone levels in the blood, which renders individuals more risk-averse. Neuroscientists have also documented that traumatic stress can cause permanent synaptic changes in the brain that further shape attitudes and behaviour, in this case plausibly in the direction of greater risk aversion.Though the pandemic is in some ways more akin to a natural disaster than an economic shock, natural disasters also can affect saving patterns: savings rates tend to be higher in countries with a greater incidence of earthquakes and hurricanes.This behavioural response is largest in developing countries, where weak construction standards amplify the impact of such disasters. One study of Indonesia, for example, found large increases in both the perceived risk of a future disaster and risk-averse behaviour among people who had recently experienced an earthquake or flood. While the response to natural disasters may be more moderate in advanced economies – where individuals expect that their government will compensate them – some lasting impact will almost certainly remain.The upshot is that we can’t count on a burst of US consumer spending to fuel the recovery once the rollout of Covid-19 vaccines is complete. And if private spending remains subdued, continued support from public spending will be necessary to sustain the recovery.But putting $2,000 cheques in people’s bank accounts won’t solve this problem because unspent money doesn’t stimulate demand. With interest rates already near zero, the availability of additional funding won’t even encourage investment. Sending out $2,000 cheques to everyone thus would be the fiscal equivalent of pushing on a string.Fortunately, there is an alternative: the president-elect Joe Biden’s $2tn infrastructure plan would mean additional jobs and spending, which is what the post-pandemic economy really needs. Better still, under the prevailing low interest rates, this option would stimulate job creation without crowding out private investment.Guardian business email sign-upAlthough Biden’s plan will require more government borrowing, infrastructure spending that has a rate of return of 2% will more than pay for itself when the yield on 10-year US treasury bonds is 1.15%. By raising output, such expenditure reduces rather than increases the burden on future generations. The International Monetary Fund estimates that, under current circumstances, well-targeted infrastructure investment pays for itself in just two years.Obviously, the “well targeted” part is important. President Donald Trump was right that the Coronavirus Aid, Relief, and Economic Security Act was loaded with pork, not least his own “three-martini lunch” tax deduction for businesses. There’s every reason to question whether Congress can do better when crafting an infrastructure bill.In response to this problem, countries such as New Zealand have established independent commissions to design and monitor infrastructure spending initiatives. If Covid-19 changes everything, then maybe it can change the way the US government organises infrastructure spending. Creating an independent infrastructure commission with real powers would go a long way toward reassuring the sceptics and insuring the recovery against the risks posed by the pandemic’s lingering behavioural effects. More

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    Jobs slump and Covid lead litany of post-Trump crises facing Janet Yellen

    Of all the 78 US Treasury secretaries since Alexander Hamilton first took up the office in 1789, few have faced an in-tray piled quite so high as the one that will greet the first woman in the job: Janet Yellen.The choice of the Brooklyn-born doctor’s daughter to succeed Steve Mnuchin was a statement of intent by president-elect Joe Biden. Where many of her predecessors have been scions of Wall Street, Yellen’s background is in economics and public policy, and she has made it clear that her priorities are with Americans struggling to get by rather than with investment bankers. “There is a huge amount of suffering out there,” she said in September as she urged Congress to agree a new stimulus package.Yellen’s expressed desire for tighter financial regulation did not, however, stop Wall Street from joining the applause for her nomination. In part, that was due to the fact that, having been the first woman to be in charge of America’s central bank, she is seen as a seasoned pro. Donald Trump declined to give her a second term as chair of the Federal Reserve in 2018 not because she was doing a bad job, but because she was a Democrat appointed by Barack Obama.More importantly, though, Wall Street sees Yellen as a Treasury secretary who will push hard for expansionary policies aimed at boosting growth, profits and share prices. Nothing in her record suggests that the financiers are wrong.American economists are often divided into two camps: “freshwater” economists who believe in the primacy of market forces and whose spiritual home is the University of Chicago in landlocked Illinois; and “saltwater” economists, who emanate from the universities on the Atlantic and Pacific seaboards and admire the teachings of John Maynard Keynes.Yellen is a Keynesian to her fingertips: she warned against an over-hasty removal of stimulus during the financial crisis of a decade ago; she insisted that the Fed pay as much attention to unemployment as to inflation when she was its chair; and she believes the state has a duty to tackle poverty and inequality.Mohamed El-Erian, once chief executive of the investment management firm Pimco but now president of Queens’ College, Cambridge, said: “The appointment was probably one of the most well-received in the history of the US Treasury, and for good reason. Economists, lawmakers and market participants rightly see her as highly qualified, having lots of relevant experience and coming to the job with a deep understanding of both domestic and international issues. The policy portfolio she inherits will require an agile mix of traditional and out-of-the-box thinking.”Top of the to-do list will be a new package of support for a US economy struggling with three interlinked problems: a pandemic, high levels of unemployment, and the imminent expiry of financial support for laid-off workers.The jobless total has come down since surging to levels not seen since the Great Depression in the first wave of infections in the spring, but remains troublingly high for a country with, by western standards, a limited welfare safety net. What’s more, the latest data on Friday showed the rate of job creation slowing.Biden wants Congress to pass a “robust” stimulus package, and the chances of that happening will be greatly improved if the Democrats seize control of the Senate by winning the two vacant seats in Georgia next month. If not, as Mark Sobel of the Omfif thinktank says, Biden will be dealing with a “stingy” Republican Senate leader, Mitch McConnell.The appointment was probably one of the most well received in the history of the US Treasury“Yellen will help negotiate and provide intellectual backing, making the case that now is the time to spend and that with low debt service costs, America should not fret in the near-term about rising debt,” Sobel says.Getting an emergency package of stimulus through Congress will only be the start of the legislative battle, because Biden also wants to spend more on upgrading America’s crumbling infrastructure and on tackling global heating.Yellen’s scope for fiscal action (tax and spending measures) may be limited by gridlock in Congress, in which case the White House will require the Fed to provide more stimulus and a good working relationship between Yellen and the man who succeeded her as head of the central bank, Jerome Powell.While sorting out the labour market and boosting living standards will be the biggest challenge, Yellen will also devote time to other policy issues. She has the executive power to toughen up what she sees as too-weak financial regulation without Congress’s say so; she will adopt a less hostile – if still robust – approach towards China; and she will seek to reassert US leadership on the global stage, pursuing a multilateralist rather than a go-it-alone approach.In all, Yellen can be expected to act as if Trump’s four years in office never happened. The message will be that the grownups are back in charge.Six central bankers who shaped the future of their economiesBen Bernanke Chair of the US Federal Reserve between 2006 and 2014, Bernanke was credited with preventing a deep recession following the 2008 financial crisis. A student of the 1930s Great Depression, he vowed to rescue the banking system and maintain the flow of funds to prevent a wave of foreclosures and mass unemployment.His determination contrasted with the Bank of England, which hesitated before rescuing Northern Rock. However, Bernanke, a former Princeton professor, played down the threat from the US sub-prime mortgage scandal during the first two years of his tenure, which he has admitted made the crisis, when it came, much worse.Karl Otto Pöhl Often dubbed a father of the euro, Pöhl was appointed president of the German Bundesbank from 1980 to 1991 by his friend and mentor, chancellor Helmut Schmidt. A colourful, English-speaking former economics journalist, he came to prominence after the conservative Helmut Kohl surprised many and reappointed him. He famously warned Kohl against rushing ahead with German unification based on a one-to-one valuation of the east German mark with its West German equivalent, fearing the collapse of the east’s uncompetitive export industries. He said the same about the implementation of the euro. Kohl ignored him. East Germany’s industrial base collapsed. After the 2008 financial crisis, southern Europe erupted in riots, with protesters blaming the euro for their ills.Mario Draghi If Pöhl laid the foundation stones for the euro, Draghi prevented the currency from toppling over. In 2012, after campaigns in several member states to quit the euro – notably in Greece and Italy – triggered panic in financial markets, he said the single currency was “irreversible” and famously pledged to do “whatever it takes” to save it.As president of the European Central Bank from 2011 to 2019, which absorbed most of the powers from 19 member states’ central banks on its creation in 1999, he drew a line under the destabilising debate about the currency’s future. After he stepped down, the Nobel prize-winning economist Paul Krugman described him as “[arguably] the greatest central banker of modern times”.Mark Carney Carney was governor of the Bank of England from 2013 to March this year. He was appointed by the chancellor at the time, George Osborne, who courted him for a year and called the former Goldman Sachs banker and head of Canada’s central bank “the outstanding central banker of his generation”. Yet within a year, he was likened to an “unreliable boyfriend” who failed to match his promises with action. This followed a series of overly optimistic forecasts that led many to prepare for an increase in interest rates that never came. Carney, more polished and dapper than his contemporaries, recovered much of his reputation in 2016 when he was dubbed “the only adult in the room” following the Brexit referendum. While parliament went into shock and No 10 was consumed by the resignation of David Cameron, Carney toured the TV and radio stations, calming fraying nerves.Raghuram Rajan The Chicago Booth economics professor is often described as one of the few economists to predict the financial crisis. In a speech in 2005 to the world’s top central bankers he explained that an explosion of borrowing made financial markets more dangerous. At the time he was chief economist at the International Monetary Fund, so he might have expected his warning that “it’s possible these developments are creating a greater (albeit still small) probability of a catastrophic meltdown” would be taken seriously. It wasn’t.He took over as governor of India’s central bank in 2013 after warning that the country was suffering from hubris, adding that “growth can never be taken for granted” and that “self-delusion is the first step towards disaster”. The rupee, which tumbled 12% against the dollar in the three months before his arrival, stabilised. By the time he left in 2016, price inflation had fallen from almost 10% to below 4% and a series of banking reforms were in place.Christine Lagarde As president of the European Central Bank since last year, Lagarde has shown she is a would-be central bank hero. Shifting the dial at an institution covering 19 countries is never easy, but the former boss of the IMF has embarked on a campaign for greater transparency in a break from the traditionally closeted bank’s decision-making, and for unemployment and inequality to be as much of a yardstick for the ECB as inflation. She has also matched Carney in the drive to make central bank lending more climate-friendly, with green bonds that only allow loans to businesses that are environmentally friendly. PI More

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    Former Fed chair Janet Yellen set to become first female treasury secretary

    Janet Yellen, the first woman to chair the US Federal Reserve, is set to achieve another first, becoming the country’s first female treasury secretary.
    The 74-year-old economist is expected to be named as President-elect Joe Biden’s choice on Tuesday.
    Yellen will take the job during one of the most trying economic times in modern history.
    US unemployment hit a postwar record in April, in the first wave of the coronavirus pandemic, and while the jobs situation has improved, the recovery has slowed in recent months as rates of infection have increased.
    Millions remain out of work, and women and people of color have been hit disproportionately hard by the downturn.
    Congress has struggled to reach agreement on a new round of economic spending, the US national debt is at record levels, and relations with the US’s major trading partners are frayed after the Trump administration’s trade wars.
    Donald Trump declined to reappoint Yellen to the Fed chair after his election in 2016, making her the first central bank chief not to serve two terms since the Carter administration. During his campaign Trump said Yellen should be “ashamed” of her policy actions and accused her of keeping interest rates low in order to bolster President Barack Obama’s legacy.
    Cautious and carefully spoken Yellen has made few comments about Trump although when asked last year if she thought Trump “had a grasp” of macroeconomic policy she said: “No I do not.”
    Yellen has recently advocated for more federal spending from Congress to tackle the economic devastation caused by the virus.
    “There is a huge amount of suffering out there. The economy needs the spending,” Yellen said in a September interview.
    Yellen, professor emeritus at the University of California at Berkeley, a former assistant professor at Harvard and a lecturer at the London School of Economics, is an expert in labor markets who has highlighted the economic impact of uneven growth in the jobs market.
    She is married to the Nobel-winning economist and frequent co-author George Akerlof.
    Progressives had been hoping Senator Elizabeth Warren, a staunch critic of Wall Street, might get the job. But with control of the Senate still in the balance, Yellen is a safer pick. After the news broke Warren called Yellen “an outstanding choice.”

    Elizabeth Warren
    (@SenWarren)
    Janet Yellen would be an outstanding choice for Treasury Secretary. She is smart, tough, and principled. As one of the most successful Fed Chairs ever, she has stood up to Wall Street banks, including holding Wells Fargo accountable for cheating working families.

    November 23, 2020

    Biden said last week that his Treasury nominee would be accepted by both the progressive and moderate wings of the Democrat party. Yellen has also in the past attracted bipartisan support, receiving 11 Republican votes for her 2014 confirmation as Fed chair, including the backing of three sitting Republican senators.
    She is also one of the best-connected economists in the world, leading the Fed from 2014 to 2018 after a long career in economic policymaking.
    If appointed, Yellen will not only be the first female Fed chair and treasury secretary, but the first person to have headed both organizations and the White House council of economic advisers. More

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    Fed chair says US economy faces ‘significant uncertainty’ and fears wider income inequality

    Jerome Powell: recession could exacerbate income inequality Long-term consequences likely to be severe without stimulus Jerome Powell at a press briefing in March. He told the banking committee on Tuesday: ‘Until the public is confident that the disease is contained, a full recovery is unlikely.’ Photograph: Eric Baradat/AFP via Getty Images The Federal Reserve chair, […] More

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    US economy risks 'permanent damage' from long lockdowns, Mnuchin warns

    The US economy risks “permanent damage” if coronavirus lockdowns continue for months, the treasury secretary, Steven Mnuchin, has warned Congress. Mnuchin’s comments came in a joint appearance before the Senate banking committee with Jerome Powell, the chairman of the Federal Reserve. Appearing via video link, the pair offered a stark assessment of the fragile state […] More

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    Coronavirus has destroyed the myth of the deficit | Yeva Nersisyan and L Randall Wray

    Coronavirus has destroyed the myth of the deficit No, federal government spending doesn’t have to be ‘paid for’. The crisis shows providing for our society is not a financial issue ‘Buying into the deficit myth, for generations we have been living below our means – paralyzed by the belief that finance is the constraint.’ Photograph: […] More