Eyes to the Wind

by Ady Barkan

  Since Fed officials aren’t chosen via public elections, how could we influence their policy choices? How might we get activists excited about the dry, esoteric topic of the Fed and monetary policy? Since interest rates were already at zero in the wake of the recession, what else could the Fed do to improve the economy?

  Paul was excited about the idea and suggested that we talk with Dean Baker, a lefty economist who had foreseen the housing collapse, coauthored a book (with Jared Bernstein) entitled Getting Back to Full Employment: A Better Bargain for Working People, and was always eager to challenge neoliberal conventional wisdom. I had read Dean’s commentary over the years and was looking forward to seeing what a big shot like him would think about my idea. So late that night, when I got home to my Astoria, Queens, apartment, I wrote up a summary for Paul to forward to Dean. Two days later we got Dean’s response: “Hi Paul, I think this is a fantastic idea. In many ways Fed policy swamps whatever else we might try to do in terms of promoting employment and decent wages. The right understands this, which is why the current debate on Fed policy goes from the center-right to the extreme right.” Dean said he was eager to move forward on the proposal. I was pumped: Dean Baker was a legit economist, and if he and Paul both liked the idea, then maybe it could actually work.

  A month later, I showed up for my first day on the job. I sat down for a check-in with my boss, Amy Carroll. She had been the legal director at Make the Road New York when I spent my fellowship year there and had recruited me to join her at the Center for Popular Democracy when she moved over to help found it earlier that year. Like at many start-ups, the staff at CPD were running a hundred miles an hour, trying to prove impact, identify new revenue streams, and scale up quickly enough to survive. They had wanted me to start months earlier, but I had been committed to my clerkship through October. So Amy was excited for me to start and take some of the workload off her plate.

  We talked about the exciting projects that I would delve into: the fight to pass a paid-sick-days law in New York City, guaranteeing the right of workers to take a few days off every year to care for themselves or their loved ones; the launch of a new network of progressive local elected officials from cities around the country; the idea of passing an enhancement to New York State’s minimum wage law to better enforce the prohibitions on wage theft and underpayment. At the end of the meeting I told her about an idea for another campaign we might want to run: pushing the Federal Reserve to adopt innovative and expansionary monetary policies that would create jobs and raise wages. With a maternalistic smile, Amy asked me to elaborate. I would go on to deliver this pitch hundreds of times, but even at that early date I began with the claim that full employment matters tremendously.

  In the three decades after the end of World War II, the United States experienced consistently strong economic growth that translated into more and higher-paying jobs, significant reductions in poverty, an expanding middle class, and major reductions in racial economic inequality. But since the mid-1970s, all of those trends have reversed. Wages have stagnated, the American middle class is shrinking, 20 percent of American children live in poverty, deaths of despair are on the rise, egregious racial and gender pay gaps persist, and wealth inequality is out of control: the four hundred wealthiest Americans have more wealth than half of all Americans combined. What happened?

  Although there are multiple culprits, none is more significant than the American government’s abandonment of its commitment to genuine full employment. Economists of different worldviews disagree about the meaning of “full employment,” but I subscribe to the simple notion that in a wealthy country and a healthy economy, anybody who wants to find full-time work should be able to do so—or, at least in an aggregate sense, there should be as many job openings as there are job seekers. Some people may be unemployed as they transition between jobs, but long-term unemployment should be negligible and there should be no consistent unemployment due to a lack of demand for workers in the economy.

  It’s obvious why having a stable, good-paying job is fundamental to any individual family’s dignity and well-being. But why is full employment so important to a healthy society? And what does it have to do with the rising inequality and economic weakness over the past four decades? Here’s the key: in a full employment economy, workers reap the benefits of their labor. But in an economy with less than full employment, workers are at the mercy of employers and as a result are paid less than their work is worth.

  In an economy with high unemployment, there are many job seekers for each job opening. When an employer posts a job opening and receives one hundred applications, perhaps thirty people have the skills and experience that she is looking for. And with thirty qualified applicants to choose from, she’s under no pressure to raise the wage she was planning to pay or offer generous benefits. There is, to use the term coined by Engels and Marx, a reserve army of labor, destitute and desperate to work. But in a full employment economy, where there are as many job openings as there are job seekers, workers are in a very different bargaining position. They can ask their bosses for raises and leave for better employment if they don’t get them, and employers looking to hire new workers need to offer higher pay.

  This is the intuitive and obvious relationship between full employment and higher wages. It’s why a full employment economy creates broadly shared prosperity, whereas a high unemployment economy promotes inequality and poverty. Under full employment, workers have bargaining power, and they can demand wages that reflect their productivity. But when unemployment is high, as it generally has been since the mid-1970s, it is the owners of capital who reap the rewards of workers’ higher productivity; they don’t need to reward workers’ efficacy and ingenuity with commensurate wages.

  The exception that proves the rule is that in the late 1990s, when unemployment finally fell quite low, inequality began to shrink and wages grew significantly—especially for low-wage workers and workers of color.

  As of 2012, when I laid out this idea for Amy, the average American worker was more educated and efficient than she had ever been. And yet the median worker’s wage hadn’t risen meaningfully in decades. This helps explain why the Federal Reserve’s choices have such profound impact on the shape of our economy and our society. By deciding whether or not to speed up or slow down the economy—by lowering or raising interest rates, respectively—the Fed has an impact on the economic fortunes of almost everybody in this country. By making it easy to borrow money and promoting job growth, the Fed not only radically transforms the lives of unemployed people (and their families) but also strengthens the bargaining position for all workers, facilitating higher wages and more stability in employment.

  The bottom line? CPD should launch a campaign to push the Fed to do whatever it takes—including via innovative expansionary monetary policy—to get back to genuine full employment.

  Amy smiled and nodded and listened. Looking back, I think there were at least three strands of thought going through her mind:

  • What the hell is “innovative expansionary monetary policy”? Is he trying to put me to sleep?

  • The chutzpah of this kid is incredible. I need him to get to work on real shit, pronto.

  • This is exactly the kind of creative campaigning that I founded CPD to do. Maybe I can teach Ady how to ask the right questions to develop this proposal into something interesting.

  I had laid out a good argument for why the Fed should pursue full employment, but I still needed to tell a comprehensible story about how the Fed should do that and how we could plausibly get the Fed to do it. Over my first months at CPD, Amy and I talked through those questions, and quite soon she had identified the crucial element that was missing from my analysis and my proposal: race.

  In America, race and economics are inextricably intertwined. Black labor has never been compensated fairly in the United States; indeed, uncompensated black enslaved labor was the central foundation for the global trade and Industrial Revolution that propelled
America toward two centuries of prosperity. White Americans have always reaped an unfairly disproportionate share of the economy’s fruits and black Americans its pits. The Great Recession exacerbated this reality, costing millions of black families their homes, life savings, and jobs.

  In 2012, while the unemployment rate had begun to significantly fall for white Americans, it remained outrageously high for black workers. “Last hired, first fired” rang true in the black experience, because the scarcity of jobs always facilitated and exacerbated the intentional bigotry and unconscious biases of employers and the structural racism built into our society. Bigoted employers don’t need to hire African-Americans if there are unemployed white applicants, and unless they are self-aware and proactive, strong social science evidence shows that even non-bigoted white employers will, for example, unconsciously discriminate against applicants with stereotypically black names. In addition, structural racism means that even superficially nondiscriminatory behavior will redound to the benefit of whites: if a white boss hires his nephew or a young woman who went to the same college as he did, that perpetuates white prosperity at the expense of black.

  Amy’s insight was this: if the Federal Reserve were to decide that the economy had recovered and didn’t need any more extraordinary help, it would be exacerbating and reinforcing these racial disparities. African-Americans and Latinos would be left farther behind.

  So my framing would matter. A campaign pitch about the Federal Reserve and creative expansionary monetary policy would be met by glazed-over eyes and silence. A campaign about jobs and wages would be met by nodding heads and smiles. But a campaign about combating racial and economic inequality by delivering full employment to all communities? That might actually get some people excited.

  I wrote up a two-page campaign proposal. It laid out some ideas for how we might begin to affect Federal Reserve policy. We would run a series of popular education workshops for low-wage workers in each of the twelve cities where the Federal Reserve has a regional bank. We would teach the workers about what the Fed was and why it mattered to their lives. And then we would organize a set of escalating pressure tactics designed to highlight how Fed officials were harming working-class people. We would lay out a series of policy reforms that the Fed could adopt in order to promote more job creation and wage growth. And we would demand that the Fed reform its governance and ensure that its leadership better represented the diversity of the American people.

  But how could we hope to influence the decisions of such an insulated and distant institution? First, we would put monetary policy on a human scale, bringing decision-makers face-to-face with the workers whose lives they were affecting. By holding meetings with Fed presidents and by taking them on tours of local communities, we could start to shift their understanding of the economic reality by showing them that the same economy that was delivering prosperity to Fed officials and everyone else within their social and professional circles was woefully failing large swaths of the country.

  Second, I realized that there was a robust corps of journalists covering the Fed whom we could use to help disseminate our message. Economic data and Fed news releases are dry stuff; we could help the reporters spice up their coverage by giving them human-interest stories, colorful protest imagery, and a bit of controversy and narrative tension.

  Third, I hypothesized that although Fed officials were formally insulated from public opinion—i.e., we couldn’t vote them out—they prided themselves on being fair and open-minded technocrats who examined the evidence and made equitable decisions that served the public interest. Their reputations and pride would be damaged if a movement of struggling black and brown workers made the credible case that their policies were exacerbating racial and economic inequality.

  Over the next eighteen months I had dozens of informal conversations with my supervisors at the Center for Popular Democracy and organizers and policy wonks from allied institutions. The idea was met with interest and support, but also with healthy skepticism. The central doubt was whether we could plausibly interest low-wage workers in so esoteric a topic. Federal Reserve interest rate decisions were made far away from the communities in which my organization and our allies worked. And although they have had an impact on all of our lives, that impact was obscure and indirect. How could we get busy people to spend their precious time organizing around this issue when other topics—like a local school closing or another police shooting—felt so immediate and close to home?

  By the spring of 2014, I was getting quite dejected by my inability to get a campaign off the ground. In the middle of one workday, from the third floor of Casa Kent, I got on the phone with my father and shared my frustration. “What would count as success?” he asked me.

  “I suppose if I could actually convince some people to take action to pressure the Fed, that would be a success,” I said, “even if we have no impact on their policies.” My father told me to work toward that goal.

  As I searched for answers to the good questions that my comrades were asking, I also needed to find the answer to another foundational question that plagued every nascent political campaign: Where was the money? This campaign would require staff and travel, and that would take real dough. My supervisors were willing to let me dabble in this work in my spare time, but if I wanted to make it a core part of my job, I would need to raise the money to pay my own salary.

  In mid-June 2014, while in San Francisco for an unrelated meeting, I got a phone call from an old friend from law school. Shayna Strom had recently left her job at the White House to work at a new foundation that was being set up by Dustin Moskovitz, the Facebook cofounder who had been Mark Zuckerberg’s roommate in college. The foundation’s staff was trying to decide where to make their initial investments and had apparently identified monetary policy as a good opportunity to have a big impact on Americans’ well-being. Their offices were just a mile away from my hotel. Could I come over to meet with Shayna and her coworker, Alexander? Yes, of course I could.

  Over beers on the Embarcadero, Alexander, Shayna, and I bounced around ideas for what this advocacy campaign might look like. I learned that Alexander’s interest in the Federal Reserve had been piqued by the same Matthew Yglesias articles that had inspired me. He had interviewed a number of economists over the past year, all of whom thought that trying to influence Federal Reserve policy was a very good idea, but none of whom had been able to lay out a plausible theory of how one might go about accomplishing that goal. Now, finally, Alexander was talking to an organizer who was laying out a game plan.

  A week later Alexander and I got on the phone and he shared with me the good news: he could give me a short-term $100,000 grant to continue exploring the idea and try to get it off the ground. Finally, I had a breakthrough.

  Back in New York, I shared the good news with my new coworker, Shawn Sebastian. I’d been introduced to Shawn a couple of months earlier by two mutual friends. He had recently graduated from NYU School of Law and was looking to start a career in progressive politics. He said he could come volunteer at CPD for three months, supported by a modest stipend from NYU. I was happy for the help.

  Together, we began planning a meeting to get the Fed Up campaign off the ground. We invited leaders from eight community-based organizations around the country to come to Washington, D.C., for a daylong meeting. We would use some of Alexander’s money to pay for the travel. I asked Shawn to put together a presentation modeling what a popular education workshop might look like, so that the community organizers could get a sense for how they might pitch this campaign to their memberships.

  It was time to finally answer in simple, accessible language the important questions about how the Fed’s policies actually influence the economy and how we could actually impact the Fed’s policies. This was new terrain for Shawn, so we went through the arguments step by step, trying to make them clear and relevant.

  First, we had to explain how the Fed influences the economy and the financial situation of w
orking families. Once again we went for the human scale. Here’s an example:

  A young couple is looking to buy a home. The price for a newly constructed house in a nearby development is $300,000. With a 3 percent thirty-year fixed mortgage, the monthly payments would be $1,265. But at 5 percent those mortgage payments would be $1,610—that is, 27 percent higher.

  If interest rates are low, and the couple can get the 3 percent loan, the local economy will see a series of positive consequences: perhaps a dozen local companies and contractors will be enlisted to build the home, providing jobs for laborers, electricians, plumbers, etc. Those workers will in turn have higher wages for the month, which they’ll spend at supermarkets, retailers, and other businesses. So $300,000 that would otherwise be sitting in a bank’s vault (or, more accurately, on its ledger in a Federal Reserve computer) will instead be pushed into the local economy, creating jobs and raising wages.

  If interest rates rise to 5 percent, however, the story looks different. In one scenario the $345 increase in monthly mortgage payments is simply too much for the couple, so they choose not to buy the house. That’s a loss for all of the workers and business owners who would have benefited from the spending that would have come with construction of the house.