The unfolding COVID-19 pandemic is revealing a severe systems failure.
Local governments don't have adequate funding to provide basic safety net services. For-profit health insurance tied to employment means millions of us may be thrown off insurance right when we need it most. And these are just the new problems on top of the known ones: most Americans don’t have savings to cover a $400 unexpected expense, and young people struggle under staggering loads of student debt.
Front line workers who keep us fed and our health cared for are working without protective gear or paid sick leave. Supplies in food banks are expected to run out in weeks. A defunded CDC and muzzled scientists meant we ignored the warnings from epidemiologists until the pandemic was too late to contain as a short-term challenge.
While this combined health and economic crisis is hitting our vulnerable members of the city already, it will ripple out to everyone eventually as the economy implodes.
As more people are laid off, unemployment is expected to grow to 20%-30%, maybe 40%, possibly worse than the Great Depression. Every component of aggregate demand—consumption, capital spending, exports—is in free fall as people simply don’t have money to spend, and if they do, they are hoarding it, as the future is now uncertain.
We can expect people to be financially trapped by debt, as whatever money they have will be used to pay off debts they took on when the economy seemed stable. Locally owned stores and small businesses, a means of livelihood for about half of us, are shuttered, many for good.
Because we live in the US, and our capitalism is founded on the exploitation of black labor and the stolen land of Native Americans, the COVID-19 crisis has a racial dimension. Black and brown people on the front lines doing low-paid service work are experiencing disproportionally high rates of infection.
Why Is This Happening?
The structure of our reigning economic system was created through a series of political choices over the past four decades that, in many cases, reversed the social progress made after the Great Depression.
This reversal has been called neoliberal capitalism, which means a return to a social order that privileges the owners not so much of the means of production (entrepreneurs) but simply of money (rentiers—those whose income is drawn primarily from financial assets).
Our democratically elected leaders at the city, state, and federal levels have justified their allegiance to this class on the basis that increasing their wealth would, ultimately, trickle down to the have-nots. Banks were deregulated and protected from competition outside the financial sector. Meanwhile, the public sector was starved of resources, and large sections of the social sector were privatized. Labor power was crushed and wages flatlined as profits for the owning class grew like never before.
Today, no part of the so-called free market economy is working. And this should not surprise us. For one, increasingly the free market has been focused on generating things ordinary people do not need, such as luxury apartments and complicated investment vehicles. As the economist Mariana Mazzucato pointed out, only 10 percent of the money flowing through Wall Street recently has ended up as actual investments in productive activity in the real economy; the rest was about exchanging assets inside the financial and corporate sector. None of this was structurally sound, and so it should surprise no one that the “black swan” of a virus brought down the whole system almost immediately.
Fredric Jameson famously said, “It’s easier to imagine the end to the world than an end to capitalism.” That rang true when things sorta worked, with a public sector able to patch these structural flaws with bandaids on capitalism. But during a crisis like this, it is revealed that the system never really was set up to work, as it claimed, for the well-being of people.
As our neighbors and communities face an unprecedented crisis, it’s precisely the time for all of us to rethink what kind of an economy is possible. With 90 percent of Americans on lockdown indefinitely, we no longer really have to imagine the end of a world. We are experiencing it.
It's Time To Break the Spell of Neoliberalism
Remember February, now ages ago, and the snide condescension of "how-are-you-going-to-pay-for-that" retorts shooting down any constructive idea proposed in the Dem debates? What looked idealistic and impractical to many then suddenly has become shockingly real and possible. Congress injected $2 trillion directly into the economy, very quickly. Denmark announced that the federal government could and would cover all paychecks, and the UK followed soon after. Barcelona seized vacant Airbnb properties for social housing. Trump said he would expand Medicare to cover those who lost their private health insurance.
If so much of economics is now being revealed as mere ideological constructs, what else is possible? If the government can just write checks for a corporate bailout, then we can do the same for the Green New Deal, or for students burdened by loan debt.
This moment is a rupture, a shattering of reality, a time when we all are called to invent a new reality. Our democratic government can decide to manage the economy toward whatever goals it wants to. It has had the power to do this all along. Economic policy choices have always been political, but part of the spell of neoliberalism was to make voters believe that the market was just like the weather, operating above us all and outside of political, democratic control. This is bullshit up and down. There is no such thing as economic autonomy. At every level of the markets we find choices made and implemented by the government.
After the Second World War, the US chose to support and expand the middle class, which was mostly white, through housing policies, a fact brilliantly examined in Keeanga-Yamahtta Taylor’s book Race for Profit. They also generously funded fiscal investments in infrastructure, education and scientific research; set high and steeply progressive taxes; and closely regulated the banking sector.
Since the era of Reagan, choices led to the current situation of all-powerful corporations, and a finance sector more concerned with the accumulation of wealth for a few rather than facilitating, as it claimed, the circulation of cash within the real economy. And many, many policies were enacted to perpetuate and uphold racial hierarchies in all systems, granting white people shortcuts to wealth and power.
Stabilizing societal function and restoring health is going to take a lot of work and imagination. Given the range of possibilities now open, why would we want to rebuild this? We have no choice but to change, to look forward and not backward. We can’t afford not to.
The Local and Immediate Response
We have immense gratitude for all the staff at City, County, and State departments working like mad to guide the public health response. The expertise and care they are applying to keep us alive and supportive of one another is beautiful, and their work stands as a testament to how good institutions are the heart of a healthy democratic society.
That said, cities and state budgets are in serious trouble. The immediate costs of the crisis response are overwhelming. At the same moment of huge expenses, the contraction of the economy means revenues for cities and states are plummeting. Cities and states are required by law to balance budgets, but the cost of necessary solutions dwarfs what we can raise locally.
Municipal and state governments need immediate and significant federal aid now to keep people healthy, housed, and fed, and to stabilize funding for all the other essential activities. Some of this must come from the federal government’s ability to print money and relay it to local governments for their on-the-ground response. The US Conference of Mayors, which includes Mayor Jenny Durkan, requested $250 billion to cover all the shortfall and additional costs incurred by this crisis. They lay out a cohesive and clear agenda of solutions here.
Beyond this short term hit, we also need to take significant action now to fix our deeply unjust, worst-in-the-nation state tax system that is so clearly failing to provide what we need. This was the substance of State Senator Joe Nguyen's April 6 post, “Don’t Listen to Bad Ideas—Austerity Will Only Hurt Us More”: We have to tax the super-rich. And our local Budget and Policy Center clarifies how we must protect and bolster public investments during the crisis here.
This is great leadership and a good start, but it's not enough. What else could Inslee and the legislature do to adequately fund vital state services?
The Federal Reserve has a special power they have never used; they can directly buy up bonds that states issue. They can actually cover state’s debts. We should be putting that special power to use now, and push our congressional delegation to go get that money!
The legislature has granted hundreds of carve outs and tax loopholes to corporations over the years. There is some transparency on this, but we need full transparency, and we need to close all loopholes except the incentives that offer the most benefit to the public.
We have 1,300 foundations in Washington state that are sitting on $55 billion in assets already earmarked to spend on charitable activities. The IRS requires foundations to spend only 5% annually, and to keep growing the other 95%. Now would be a good time for Gov. Inslee to convince them to push out another 5% locally, or $2.75 billion.
Many have noticed that Amazon pays comparatively very little into our public systems when they have such tremendous profits. We need to fund auditors and set up oversight at the Department of Revenue to examine if we are being ripped off. (We are.)
The legislature also must allow all cities and counties to implement an additional tax on payroll of large corporations, as Seattle City Councilmembers Kshama Sawant and Tammy Morales are proposing.
Starving public investment is completely the wrong approach to the emergency of this crisis. Yes, our constitution doesn’t offer a lot of options, and the right is going to call us mean names whatever we do, but we need to get out of the defensive crouch and push against every constraint to see which give way.
Cutting public budgets now would force more and more of us into poverty, starve the safety net people depend on for survival, defund public education, and slick the downward spiral of economic contraction. To choose austerity during a time of economic crisis is demented, and can only be understood as an act of class domination. See conservative Herbert Hoover’s actions that worsened the depression, and these local ghouls.
The Federal Response So Far
There is much to learn from what we did wrong in 2009, and in the first bailout packages of 2020.
In 2009, Congress and the Fed made a fundamental error in putting all the power into the hands of the financial industry via monetary policy. We all saw how that went; they kept the money for themselves and the corporate sector instead of “efficiently” redistributing it to those in need: people unable to make home payments, people who needed employment and education assistance to get back on their feet, small business owners struggling to make ends meet.
The flood of fiscal spending that was supposed to go to local ‘shovel ready’ projects got hung up and trapped by bureaucratic process and wasn’t enough to have much of a positive effect. In the end, the financial industry and corporate plutocrats grew wealthier and more powerful, and the top 5% of Americans now own 2/3 of all the wealth.
Taken together, the first three 2020 bailout packages have been large and ambitious, but they also amount to a hodge-podge of giveaways and panicked caving to demands of the financial industry and corporate lobbyists.
As in 2009, the current Congress is putting too much blind faith in the idea that corporations will spend the money toward productive activities—such as paying workers’ wages, continuing health benefits, and promising not to lay people off.
It should have required these and much more stringent stipulations and oversight: no buybacks or executive bonuses or dividends to enrich themselves or shareholders, implementing a $15 minimum wage, putting workers on boards of directors, and giving the public an equity stake in bailed-out businesses. It should have included aid for undocumented workers and the millions of people too poor to file tax returns. It could have done a lot more to support working class people, and to increase local funding for small business, nonprofits, and freelancers.
The worst thing it did is hardest to see, since this will happen deep inside the corporate finance industry. The $400 billion corporate allocation will likely be leveraged 10-1 to create a $4 trillion avalanche of cheap credit to the corporate sector.
This is damaging because it puts the uber-wealthy back on their feet first, and because it enables the already dominant players to buy up competitors and reduce competition.
This $4 trillion, plus the $2 trillion already held by private equity vultures that are poised to swoop in and buy up distressed and struggling companies, could lead to an alarming consolidation of ownership, which would further decimate local ownership economies. In a world where wealth equals power, this degree of unchecked, concentrated corporate power makes it very hard for democracy to function.
What the Federal Response Should Be
Every day the situation is changing, and we learn more about what lies ahead. What we do now should lay the groundwork for what sort of economy we want to build for the future.
Currently, Congress is working on the next or 4th bailout package. This next one needs to do what the first three didn't, which is directly attack wealth inequality and focus on well-being for people. The Peoples’ Bailout from Working Families Party lays out five principles that should guide us toward this end:
1. Health is the top priority, for all people, with no exceptions
2. Economic relief must be provided directly to the people
3. Rescue workers and communities, not corporate executives
4. Make a down-payment on a regenerative economy while preventing future crises
5. Protect our democratic process while protecting each other
For an example of what Congress could do, see the package Senator Bernie Sanders put forth; the most just and transformative vision for economic reform we’ve seen in our lifetimes.
We should push Congress to implement those policies. But what if we also used this time of lapsed activity to share in a mass creative act of reimagining our economy and shaping a more just and inclusive society? At this moment, almost anything is on the table.
Here are a few great ideas to start:
• The Green New Deal is a cohesive agenda for restoring jobs and building green infrastructure for a new economy. We can put people to work retrofitting homes and public buildings, restoring ecosystems, planting forests. Remake our infrastructure: renewable energy, transit systems, local generation and storage of electricity, efficient distribution networks. Electrify everything to get off fossil fuels completely. Reimagine a green industrial sector to make green technology.
• As Mariana Mazzucato advises, the federal government must fund advanced science and R&D to spark development of society’s next innovations, especially in green tech and public health.
• Invest in transit and infrastructure for walking, biking, rolling to make any other mode more affordable and reliable than driving private vehicles.
• Make deep cuts to the bloated military budget with the goal of reducing funding in half over next five years.
• Progressive tax reform can both help fund programs and reduce wealth inequality, so now is the time to implement a wealth tax, high marginal tax rates, capital gains tax, and strengthen the estate tax.
• Modern Monetary Theory offers a new and more accurate way to understand the power of a federal government with sovereign currency to spend on constructive activities; the constraint is to not overwhelm labor capacity and cause inflation.
• How best to best get all those trillions of wealth being hoarded by billionaires and corporations back into constructive circulation? Make offshore accounts illegal, and require those trillions be repatriated money by the end of the month, or it will not be allowed to be brought back.
• Maybe we should give currency a shelf life; require that the wealthy either circulate it or it evaporates.
• Forgive student debt and make tuition affordable or free at all public universities.
• Since many signs point to an impending failure of for-profit insurance, let’s implement Medicare For All now.
• Help small businesses reorganize as worker-owned cooperatives and worker collectives.
• Build municipal broadband everywhere, and give everyone access.
• Create a state bank and set up postal banking right now.
• Elizabeth Warren has a great plan to break up platform tech, and use anti-trust and IP reform to reestablish competition and enable small players to emerge. Let's implement it.
• Re-regulate the financial industry to limit complex derivatives, require them to lend into the real economy.
• Tame the Private Equity industry before they buy up and destroy media, local retail, and rental housing.
• See Darrick Hamilton’s work on target solutions to bridge the racial wealth gap.
• Restore and protect the sovereign rights of tribes and fully fund treaty provisions.
• Fully fund social security, raise the cap on contributions for high earners, and raise the pay to cover the cost of living for elders.
• How can we direct federal money to build public or permanently affordable housing? Should the state buy up all the excess Airbnbs, and fold them into the stock of low income housing?
People Power Is the Only True Source of Power
Every advance in US society has emerged from a radical confrontation with capitalism. History of social progress shows reform always comes from the oppressed. We’ve been miseducated to look up to white people as heroic agents of progress, but the opposite is true. Change comes from poor and working-class movements relentlessly challenging power, scaring its pants off.
The power to reshape our economic system will come from, must come from, those who have been oppressed and excluded from wealth. The history of capitalism is also a history of activism. Left unchallenged, the exploitation of Black labor, child labor, women’s labor would have continued for lord knows how long. If you believe in the possibility of a more just economy and more equitable society, join in solidarity with those who capitalism has excluded—Indigenous Americans, migrant workers, women of color, immigrants and refugees, Black Lives Matter, domestic workers.
Building the vision and organizing the movement only happens in solidarity. Locally, there are many groups already working: the Democratic Socialists of America, Socialist Alternative, Got Green, Peoples Party, COVID-19 Mutual Aid Network, Washington Community Action Network, Puget Sound SAGE, Working Washington, service and retail workers labor unions, Seattle for a Green New Deal, OneAmerica, and, heck, even your local Democratic Party LD.
Nationally there is the Working Families Party, People’s Action, Our Revolution, Movement For Black Lives, and many others. Join one of them to imagine a replacement for our imperialist white supremacist capitalist patriarchy, and to be part of confronting power.
The tremendous financial wealth of the USA is failing to save us right now. What we have is each other, and a shared belief in a healthy society that watches out for everyone’s well-being. It’s going to take all of us to reinvent how our economy serves that purpose.