Peonage, also called debt slavery or debt servitude, is a system where an employer compels a worker to pay off a debt with work. Legally, peonage was outlawed by Congress in 1867. However, after Reconstruction, many Southern black men were swept into peonage though different methods, and the system was not completely eradicated until the 1940s.
In some cases, employers advanced workers some pay or initial transportation costs, and workers willingly agreed to work without pay in order to pay it off. Sometimes those debts were quickly paid off, and a fair wage worker/employer relationship established.
In many more cases, however, workers became indebted to planters (through sharecropping loans), merchants (through credit), or company stores (through living expenses). Workers were often unable to re-pay the debt, and found themselves in a continuous work-without-pay cycle.
But the most corrupt and abusive peonage occurred in concert with southern state and county government. In the south, many black men were picked up for minor crimes or on trumped-up charges, and, when faced with staggering fines and court fees, forced to work for a local employer would who pay their fines for them. Southern states also leased their convicts en mass to local industrialists. The paperwork and debt record of individual prisoners was often lost, and these men found themselves trapped in inescapable situations.
Generational Power Transfers During Political Crisis (Grant Williams, Neil Howe, Harald Malmgren)
Grant Williams and Neil Howe travel to the nation’s capital to continue their discussion about how previous “Fourth Turnings” have impacted the United States. They weave their way through the National Mall, paying homage to the WWII, Korean War, and Vietnam Veterans memorials and the generations they represent. They then meet with economist and former presidential advisor Dr. Harald Malmgren to get a look inside generational transfers of power and politics during times of upheaval. Filmed on April 4, 2019 in Washington, D.C.
Modern Monetary Inevitabilities
ALEXANDRIA, VIRGINIA – In a recent Project Syndicate commentary, James K. Galbraith of the University of Texas at Austin defendsModern Monetary Theory and corrects some misunderstandings about the relationships among MMT, federal deficits, and central-bank independence. But Galbraith does not explore what is perhaps the most important issue of all: the political conditions needed to implement MMT effectively.
MMT owes its newfound relevance to the fact that deflation, rather than inflation, is becoming central banks’ main concern. For a high-debt, high-deficit economy like the United States, deflation is an especially serious threat, because it delays consumption and increases debtor anxiety. Consumers forego major purchases on the assumption that future prices will be lower. Homeowners with mortgages cut back their spending when they see home prices falling and the equity in their homes declining. These cutbacks worry the Federal Reserve, because they add to deflationary pressures and could trigger deeper spending cuts, stock-market declines, and widespread deleveraging.
The Fed’s inability so far to reach its 2% target for annual inflation suggests that it lacks the means to overcome persistent disinflationary forces in the economy. These forces include increased US market concentration, which diminishes aggregate demand by weakening employee bargaining power and increasing income inequality; population aging; inadequate investment in infrastructure and climate-change abatement; and technology-driven labor displacement. Making matters worse, US political gridlock assures continued commitment to economically exhausted strategies such as tax cuts for the rich, at the expense of investment in education and other sources of long-term growth. These conditions cry out for significant changes in US government spending and tax policies.
MMT is seen as a way to accomplish the needed changes. It holds that a government can spend as much as it wants if it borrows in its own currency and its central bank can buy as much of the government’s debt as necessary – as long as doing so doesn’t generate unacceptably high inflation. Both tax-cut advocates and supporters of public investment find little not to like.
MMT has been roundly criticized by economists across the political spectrum, from Kenneth Rogoff and Lawrence H. Summers of Harvard University to Paul Krugman of the City University of New York. All contend that it is a political argument masquerading as economic theory. But Galbraith and Ray Dalio of Bridgewater Associates see MMT differently. Dalio argues that MMT is real and, more to the point, it is an inevitable policy step in historically recurring debt-cycle downturns.
In his book Principles for Navigating Big Debt Crises, Dalio documents the steps that central banks have historically taken when faced with a booming economy that suddenly crumples under the weight of debt. The first step (Monetary Policy 1, or MP1) is
- to cut overnight official rates to stimulate credit and investment expansion. The second (MP2)
- is to buy government debt (quantitative easing) to support asset prices and prevent uncontrollable waves of deleveraging. If MP1 and MP2 are insufficient to halt a downturn, central banks take step three (MMT, which Dalio calls MP3) and
- proceed to finance the spending priorities that political leaders deem most essential. The priorities can range from financing major national projects to “helicopter money” transfers directly to consumers.
Achieving political agreement on what to finance and how is essential for implementing MP3 effectively. In a financial meltdown or other national emergency, political unity and prompt action are essential. Unity requires a strong consensus on what should be financed. Speed requires the existence of a trusted institution to direct the spending.
In the early 1940s, when the US entered World War II and winning the war became the government’s top priority, the Fed entered full MP3 mode. It not only set short- and long-term rates for Treasury bonds, but also bought as much government debt as necessary to finance the war effort. MP3 was possible because the war united the country politically and gave the Roosevelt administration near-authoritarian rule over the economy.
The core weakness of MP3/MMT advocacy is the absence of an explanation of how to achieve political unity on what to finance and how. This absence is inexcusable. Total US debt (as a share of GDP) is approaching levels associated with past financial meltdowns, and that doesn’t even account for the hidden debts associated with infrastructure maintenance, rising sea levels, and unfunded pensions. For the reasons Dalio lays out, a US debt crisis requiring some form of MP3 is all but inevitable.
The crucial question that any effort to achieve political unity must answer is what constitutes justifiable spending. Alexander Hamilton, America’s first Secretary of the Treasury, offered an answer in 1781: “A national debt,” he wrote, “if it is not excessive will be to us a national blessing.” A government’s debt is “excessive” if it cannot be repaid because its proceeds were spent in ways that did not increase national wealth enough to do so. Debt resulting from tax cuts that are spent on mega-yachts would almost certainly be excessive; debt incurred to improve educational outcomes, maintain essential infrastructure, or address climate change would probably not be. Accordingly, it will be easier to achieve political unity if MP3 proceeds are spent on priorities such as education, infrastructure, or climate.
The political test for justifying MP3-financed government spending, is clear: Will future generations judge that the borrowing was not “excessive”? Most Americans born well after WWII would say that the debt incurred to win that war was justified, as was the debt that financed the construction of the Interstate Highway System, which literally paved the way for stronger growth.
As the 1930s and 1940s show, MP3 is a natural component of government responses to major debt downturns and the political crises they trigger. We know much more about what contributes to economic growth and sustainability than we did in the first half of the twentieth century. To speed recovery from the next downturn, we need to identify now the types of spending that will contribute most to sustainable recovery and that in hindsight will be viewed as most justified by future Americans. We need also to design the institutions that will direct the spending. These are the keys to building the political unity that MMT requires. To know what to finance and how, future Americans can show us the way; we need only put ourselves in their shoes.
The Unrealistic Economics of the Green New Deal
Saving planet, creating jobs are noble ideas—but by combining them, Green New Deal exacts too high a cost
The Green New Deal that Democrats unveiled last week is actually two deals: one to combat global warming, another to create millions of well-paid jobs for targeted groups.
Individually, both goals have their merits. But by combining them, the Green New Deal promises to make climate mitigation both absurdly expensive and deeply partisan and is thus more likely to set back than advance the climate cause.
The premise behind the Green New Deal is right. While the world may not spontaneously combust in 10 years, global carbon-dioxide emissions need to start dropping soon, by a lot, to keep temperatures from rising more than 1.5 degrees Celsius from 1800s levels, according to the Intergovernmental Panel on Climate Change. Increases beyond that raise the probability of extreme weather, deadly heat and rising sea levels.
Because the private market has no incentive to reduce carbon emissions, government intervention is necessary. But not all interventions are created equal, and the Green New Deal’s seem engineered to be as expensive as possible.
Consider its goal of massive public investment to achieve 100% renewable energy in as little as 10 years. Kevin Book, head of research at ClearView Energy Partners, a research firm, estimates replacing the 83% of current U.S. generation that is not renewable with solar photovoltaic, wind and biomass would cost $2.9 trillion—nearly a full year’s tax revenue.
This excludes any cost for interest, operations, maintenance, new transmission lines or compensation to private investors for writing off natural-gas and coal plants with plenty of useful life left. It assumes cheap battery storage that doesn’t yet exist. Even so, this works out to $83 to avoid one metric ton of carbon dioxide.
The Green New Deal’s plan to upgrade every building in the U.S. to “maximum energy efficiency” is even more questionable. A study by Meredith Fowlie, Michael Greenstone and Catherine Wolfram in the Quarterly Journal of Economics found the federal government paid an average of $4,585 each to weatherize homes in Michigan. Extrapolate that to 95 million homes nationwide, and the bill tops $400 billion. The cost of avoided carbon dioxide: up to $285 per ton.
To understand how high $83 to $285 per ton of carbon dioxide is, consider that Barack Obama’s economists put the economic harm of a ton of CO 2 at $50. Or that you can pay a power producer
just
- $6 to reduce emissions by one ton in New England,
- $15 in California, and
- $25 in the European Union,
based on emission permit prices in those jurisdictions, notes Mr. Greenstone, an economist at the University of Chicago.
Yet in the Green New Deal, trillion-dollar price tags are a feature, not a bug. That is because its mission is to create “millions of good, high-wage jobs” in “front-line and vulnerable communities.” The higher the price tag, the more jobs it creates. How to pay for it? Its Democratic sponsors would raise taxes on the rich and borrow the rest, including from the Federal Reserve, just as the U.S. did during World War II, dramatically boosting output and employment.
But in 1941, the U.S. had plenty of unused resources to mobilize: just 28% of prime-aged women had jobs. By 1945, 35% did and today, 74% do. (The data aren’t strictly comparable due to changing definitions.) The war effort still spurred intensive inflation pressure, contained only with wage and price controls. The U.S. is now close to full employment and its debts are far higher. Even in today’s world of low inflation and low interest rates, the scale of deficit spending the Green New Deal implies would likely push both higher.
Republicans and business groups have long fought even modest costs to mitigate climate change. Jacking up the price to finance left-wing Democratic priorities will only intensify their opposition. Indeed, Republicans and President Trump are itching to run against the Green New Deal. This guarantees inaction on climate unless Democrats win the White House, House of Representatives and 60 Senate seats.
What the U.S. needs is the Green New Deal’s sense of urgency combined with market mechanisms that incentivize carbon reduction at the lowest price, such as a carbon tax, carbon credits or tradable emission permits. This will also spur innovation that other countries can adopt to tackle their own emissions, which will be 88% of the global total by 2040.