Bernie Needs to Talk Austerity, and Podemos Can Show Him How

Bernie Sanders’ editorial in today’s New York Times is fairly representative of liberals’ general remarks on the Fed raising the federal funds rate. It notes the dangers of it causing a recession by making investment more expensive, and this just for the benefit of combating nearly non-existent inflation. Missing from his editorial and pieces like it is an assessment of the drastic change that has taken place in the implementation of the fed funds rate. In the past, the rate was the amount it cost banks to borrow money from other banks in the reserve system at closing time, as they would need to borrow money to met reserve requirements at the end of the business day. The Fed funds rate being “high” made end of day borrowing costly, indirectly causing banks to loan out less money during the day. The Fed would use this method and others to cut the money supply, and thereby increase rates for bank lending.

But because the markets are so flush with money from the Fed buying bank assets (the miracle of qualitative easing), the Fed has decided that draining the money supply will not raise rates, and so, rather than making it expensive for banks to make cheap loans, the Fed will pay the banks to keep their money in the Fed and out of the economy. Taken as an argument, the move makes sense, but we must not be timid in acknowledging how astounding this is. The transfer of money from workers to the economic elite created conditions that seem to be best remedied by transferring more money from the workers to the elite. It does not necessarily follow that this policy will have consequences that will likewise be resolved with more cash transfers from the people to the elite. But the material of history would suggest it is quite reasonable to expect this.

Sanders laments the Fed’s paying banks in order to raise lending rates, but he seems to imply that these policies are incidental and not the actual mechanism of raising the fed funds rate now. Noting that these payoffs have been going on for years obfuscates the point that we are seeing a new justification for cash transfers to banks. It is unclear why Sanders disconnects these policies, but that he does so is troubling, as it limits his editorial to a critique of the coextensiveness of the economic elite and the political elite as the power elite, without articulating what this power is used for, crippling neoliberal, austerity policies of capital accumulation, and which in being so labeled, would link up the struggle of working Americans to other workers around the world, doing much to mend the fractures of the global Left.

In a huge result for the Left, Podemos exploded the two party system in parliamentary elections in Spain this Sunday, and did so by articulating a critique of austerity and an analysis of how it grounded common experiences in the Spanish polis. Sanders would do well to consider the methods employed by Podemos; Sanders needs to tap into and expand on the ideals of Occupy, just as Podemos expressed politically the social currents behind the 15-m movement, the Spanish anti-austerity mass demonstrations that inspired the first Occupiers. While Podemos’ leaders, Iglesias and Errejon, were incorrect that the demonstrations would be best mirrored by a post-political Laclaun populism, this sort of non-participationism would seem to describe what was Occupy, such that the Americans Sanders is trying to rally might respond to just the sort of post-political structures Podemos has developed. But first, Sanders needs to expand his analysis of austerity and its many forms.

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  1. #1 by Daedalus Lex on December 23, 2015 - 10:37 pm

    Good food for thought!

  2. #3 by Sirius Bizinus on December 23, 2015 - 11:16 pm

    Actually, I think that Sanders did a great job of describing a critical problem of how government regulation occurs in the financial sector. The conversation happening in Spain can’t happen here yet because, as Sanders put it, the foxes are in control of the hen house. Even with Dodd-Frank getting passed into law, eventually it was neutered to the point of being practically useless.

    I think that’s why Sanders focused solely on the comingling of board members on the Fed. New justifications for giving banks money is a symptom of the problem of having the regulatees governing the regulators. Until that’s broken up, you can’t address any other problem.

    Another wrinkle that Sanders didn’t mention is that the banks actually pay the Fed to do their job. While they’re required by law to provide money to the Fed, they can (and do on occasion) withhold money. Dodd-Frank did try to change that with the CFPB, but that wasn’t very successful. The financial lobby was able to do many things to get regulation off their backs.

    Finally, I’ve always been interested in the Occupy movement. Once upon a time, I even sent them an email expressing an interest in suggesting some ideas to them. They never took me up on the offer; at the time, many people were being dismissed as corporate shills. It was frustrating.

    Their tactics are actually best suited to affecting state government. Things can be done at the state level to influence policy regarding Constitutional amendments. Why they haven’t explored this is beyond me.

    • #4 by ausomeawestin on December 29, 2015 - 2:38 am

      All fine points, and I agree with much of what you have said, but it’s worth noting that the foxes are no less in control of the hen house in Spain, and as it hasn’t prevented these sorts of conversations there, it roughly follows that such conditions shouldn’t preventing those conversations from occurring here.

      I don’t disagree that it is important for Sanders and other commentators to point out that it is absurd that big banks set policy when we know they cannot be trusted. My point is that what has been missing in these pieces is a discussion of how absurd it is that the raising of the fed funds rate is a cash transfer program in favor of global financialists. I read many pieces on the rate increase on left-leaning sites, mainly because they just had so much coverage on it, and there was no mention of this feature; I finally found something buried at the end of a long Times article. Why isn’t the left making a bigger deal about this? Everyone knows that the fed is a bunch of bankers making decisions that benefit the big banks, this is nothing shocking. It is shocking that the fed is paying banks to not lend consumers money. I certainly agree that reforming the makeup of the fed board would need to come before we can hope of ending these transfer programs, but I submit that there has to be a public outcry for reform before that, and folks are more likely to be rallied by the idea that their money is being redistributed to the wealthy than the fact of general corruption and the revolving door between the fed and Wall Street.

      Thanks for your comments and insights per your other remarks here, I quite agree.

  3. #5 by oosorio456 on December 24, 2015 - 7:23 pm

    Bernie sanders is a principles candidate

    • #6 by ausomeawestin on December 29, 2015 - 2:42 am

      I see. Yet he must also be pragmatic. My point is he and capitalism-supporting-liberals are not adequately using the enormity of the situation to rally a larger segment of the population than he has reached.

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