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On Sunday, after months of negotiation, the Senate passed a budget reconciliation bill called the Inflation Reduction Act. This week on Intercepted, we go behind the bill to look at the dynamics driving inflation, scrutinize the solutions being pushed by fiscal hawks, and demystify the economic jargon being used to sideline worker interests in pursuit of profit. Intercept Deputy Editor Nausicaa Renner is joined by investigative journalist Ken Klippenstein and senior writer Jon Schwarz to discuss their latest story about Bank of America executives’ concerns about low unemployment and a tight labor market, how that sentiment is echoed throughout the media, and the cost of engineering a recession.

Jeremy Scahill: This is Intercepted.

Nausicaa Renner: I’m Nausicaa Renner, deputy editor of The Intercept.

On Sunday, a historic thing happened. The Senate finally passed the bill they’ve been trying to pass for an entire year. Or, at least, a version of it. What started as Build Back Better, got whittled down, and whittled down, and set aside, and eventually reemerged this summer as the Inflation Reduction Act, written in secret by Sen. Joe Manchin and Senate Majority Leader Chuck Schumer. The bill includes billions in funding for climate initiatives, but is also primarily a deficit reduction bill. That means it includes way more savings than it does spending. 

Just a few weeks ago, it was unimaginable that something of this size was going to pass. It’s an incredible accomplishment, with important ramifications, and the climate side of the bill is worth scrutinizing. But it also gives us a window into the politics around the economy, and the fight between the Republicans, Joe Biden, and Joe Manchin to own the narrative about what’s happening in the economy — a narrative that is often out of touch with the on-the-ground reality for working people.

In some ways, to understand the battle that’s going on to own the narrative of inflation, you have to go back to 2008. In 2008, Obama was criticized for going too small in his big bill to address the housing crisis. Biden, on selling the American Rescue Act in 2021, compared the pandemic response to 2008:

President Joseph R. Biden: So, the way I see it, the biggest risk is not going too big. It’s if we go too small. We’ve been here before. When this nation hit the Great Recession that Barack and I inherited in 2009, I was asked to lead the effort on the economic recovery act to get it passed. It was a big recovery package, roughly $800 billion. I did everything I could to get it passed, including getting three Republicans to change their votes and vote for it. But it wasn’t enough. It wasn’t quite big enough. It stemmed the crisis, but the recovery could have been faster and even bigger. 

NR: Obama’s former economic adviser, Larry Summers, maybe feeling a bit competitive with Biden, immediately blasted the bill.

Larry Summers: I think this is the least responsible macroeconomic policies we’ve had in the last 40 years.

NR: And he warned of accelerating inflation as a result.

LS: I think there’s about a one-third chance that inflation will significantly accelerate over the next several years, and will be in a stagflationary situation.

NR: So now that inflation is going up, Summers is claiming victory. And in the meantime, the White House is trying to craft its own narrative, blaming sky-high corporate profits, price gouging, and supply chain issues as drivers of inflation. 

The supply-chain issues, of course, are due to the lingering effects of the pandemic and the Russian war on Ukraine. 

So, because it’s The Intercept’s job to constantly provide a corrective to Larry Summers, we have two writers on today to talk about inflation, employment, wages, and the all-important narrative around the economy — from a sane point of view.

I’m joined by Jon Schwarz, a senior writer for The Intercept, and Ken Klippenstein, an investigative reporter for The Intercept.

Last week,  Ken and Jon reported  on a Bank of America memo in which an analyst told the bank’s wealthy clients they hope workers in the U.S. will lose leverage in the labor market . Although parts of that memo received some coverage when it was sent to clients, The Intercept is the first to publish the actual text, explaining the firm’s view on the economy and how the battle-lines are being drawn.

NR: But before we talk about the Bank of America memo, I started our conversation by asking Jon if the Inflation Reduction Act will actually reduce inflation:

Jon Schwarz: The only honest answer to that is: I don’t know. And that’s the only honest answer that anybody can give. Like, nobody really knows if this is going to reduce inflation. It might. But it won’t happen for a while. 

Nonetheless, in the long term, it could do some things that will be very positive for Americans in general — like lots of people are seeing their electric bill go up significantly, and if you are lucky enough to be in a place where you can buy electricity that is generated by wind or solar power, you will not have seen your electric bill go up. The people that are seeing real surges in their electric bills are in places where they’re getting electricity generated by natural gas and other fossil fuels. And so what this demonstrates is that the Inflation Reduction Act, you know, to the degree that it can really get the United States off of fossil fuels is going to make prices more stable and lower for people in general. And that’s a great thing. And so, hopefully, that will happen.

NR: And so, Jon, you also wrote a controversial piece back in December, called “ Inflation Is Good for You. ” And you were subsequently taken to task for that headline by the likes of Fox News and, and Bret Stephens. And, granted, back at the time, we didn’t know just how bad inflation was going to get. It seems much more serious now than it seemed then. So I wanted to ask you, if you wanted to revisit the headline, and do you stand by it now. 

And maybe explain first why inflation could ever be good for someone?

JS: Yes, well, I admit that the headline was a little bit troll-y. And boy, did people get angry about it. But I stand by what the article says, which is that as long as wages keep up with inflation, inflation is generally good for lots and lots of people in the economy, like you’re purchasing power doesn’t change, but the value of any debts that you have goes down, like your debts are denominated in dollars that are losing value. So if you have a mortgage, if you have student loans, you actually may be better off during periods of somewhat higher inflation. 

Now, it is true that you can always find people who are genuinely suffering because of inflation — people who are not making very much money, who are not getting raises to keep up with inflation. But the fact remains, if you look at the statistics, the wealth of people in the bottom 50 percent in the United States has actually gone up significantly during the last two years. And this is a hard thing for people to get their minds around it. Like, nobody likes inflation; it’s never politically popular. But the truth is, it is good in many cases for many people. 

And the real point of the article was: economists used to say trying to deal with inflation by causing a recession is like curing a hangnail by cutting off your hand. Recessions are generally much worse for people than inflation is. And if you have to choose between the two, yeah, you probably want to go with inflation. 

And I want to emphasize that inflation does hurt a lot of people who are not making very much money. And that is a terrible thing. And that is a reason to be concerned about inflation. But what we should be careful of is not doing things to try to tamp down inflation that hurt people like that even more.

NR: And is there like a point at which you yourself would say: OK, inflation is getting so bad, that we actually do need to do something about it?

JS: Yes. I mean, it absolutely could get high enough that we would want to do something about it. But that’s something is the question, right? To deal with inflation, generally, the idea is you need to reduce the amount of demand in the economy. And the tool that the Fed has and always uses is slowing down the economy, which throws people generally at the bottom out of work, reduces wages, and so on. 

You could also reduce demand by raising taxes on richer people. And so the question is like: What is the solution to this problem? And I think that we should concentrate on solutions that make people who have more pay the most — that’s just basic justice — rather than making the people at the bottom pay the price.

NR: I’m not an economist, but I was sort of trying to think about a different way to look at everything that’s happening right now. And it seems to me that in some ways, what we’re seeing now is almost a rebalancing after very stagnant wage growth over the past couple of decades. And that actually we need so desperately to have working people have their wages be able to catch up a little bit, because the price of everyday living is becoming completely unsustainable for people. And the economy that relies on that kind of low wage work is — I mean, it’s been going too far for a long time, but now it’s really gotten horrible. 

So, I don’t know. I wondered if you would agree with that.

JS: I think that’s absolutely true. I mean, life has gotten harder and harder and harder for people in the bottom 50 percent of the United States for decades. And whenever there are big questions like this, like: What are we going to do about inflation? We should be pushing for life to be made easier for people who have had it tough for a long, long time, and not making them pay the total cost of everything that’s going on. 

But the way the U.S. political system works is they’re always the ones who pay the price. Every difficult situation, we stomp on the faces of the people at the bottom.

NR: And the market that’s existed for the past couple of decades has relied on having this slack labor market, i.e. basically taking advantage of high unemployment rates to create these businesses that are unsustainable, if you actually have decent wages. 

JS: Yeah, that absolutely is true. In a better functioning economy, you’d have a lot fewer people who are busboys at country clubs because there would be more productive jobs installing solar panels for them that would pay higher, and would pay better, and they also would have more power in their workplace. They probably would be unionized. 

And so in a situation like that, in an economy that really worked for everybody, you would get a lot of angry country club members who’d be like: Why is service so slow? Why aren’t they cleaning my table faster? And the answer would be because we have an economy that works for people. And so that means that we can’t afford to have a ton of really crappy jobs like we had before.

NR: And Ken, something that you and I have interpersonally talked about a lot is that mainstream economics uses the opacity of language to kind of hide from people what’s really going on. You both wrote a story on this Bank of America research report that really brought this out. 

They’re saying that they benefit from a slack labor market very directly. And they’re saying that they don’t want working people to have power very directly. But it’s not something that is normally brought to the attention of everyday people by the business press. 

So can you tell us about the memo that you guys reported on, and what it said? And maybe you could even read a bit directly from it, if you have it in front of you?

Ken Klippenstein: Sure. So the memo was written by Ethan Harris, who’s the head of global economics research for Bank of America, because remember, this isn’t just a bank in the sense of the kind of bank that you go into to open a checking account and check your savings, it’s also an investment bank. And so they pay very close attention to macroeconomic trends, including the labor market. And what’s special about a document like this is that it’s sort of in a gray area, in terms of it not being totally publicly available; it’s sent to their clients who themselves are having to make investment decisions to make a profit. And because of that, and its internal nature, and the fact that they’re informing investment decisions, they tend to be very candid about things in a way that they’re not in public. And so they let their hair down a little bit. And they say what they really think. And that can be a nice antidote to, as you said, the euphemisms that they rely on to describe things that they have good reason to use euphemisms [for], because they would be unpopular. 

This reminds me very much of national security reporting, which I think people are a little bit more familiar with, in the sense of when you say you’re going to kill someone, you don’t say that; you say you’re gonna liquidate the target or that you need to neutralize something. Or you don’t say civilians, you say soft targets. They have all these ways to sort of prettify things that are ugly. And so looking at this memo, it reminded me very much of the national security world. You can look at some of the euphemisms they use to describe things that are going to really hurt large numbers of people. 

So for example, looking at that memo, it says, expresses distress about “a record tight labor market” — that’s a phrase you’ll see repeatedly, tight labor market. What that means is that people [laughs] have too much freedom in terms of the number of job openings that they have to choose between, and that they can leave their jobs; that their hourly wages are too high; and because of that, employers have to bid up the price of labor and give workers more options. Now they can’t come out and say [laughs] ordinary, everyday workers have it too good. So they have to say a “tight labor market.” 

So that’s just as one example. At another point in the memo, it says “wage pressures are … going to be hard to reverse. While there may have been some one-off increases in some pockets of the labor market, the upward pressure extends to virtually every industry, income and skill level.” So they’re paying very close attention, these investment banks, to the gains that workers have had. And I agree with your assessment before, that this is sort of the balancing of the stagnancy of the worker situation wage growth over the past 30 or 40 years. And they’re not going to come out and say that. [Laughs.] They’re not going to come out and say: We need to crush workers, but in this very opaque way, and with these sort of glossary terms to refer to ordinary, everyday people’s conditions, it sounds a lot like between this memo and a lot of other macroeconomic analysis I have from other big banks that we’re going to be reporting in the coming weeks, like Goldman Sachs, Citibank, and the like, they’re basically saying that workers have it too good and we need to do something about that. And that’s where a lot of this inflation talk comes into play and becomes useful, because instead of saying that, they can say something that’s a little more palatable, and say: Oh, inflation is too high. 

And there’s this long standing theory that you’ve got to tamp down wage growth and worker security if you want to fight inflation. Now, again, you’re not gonna be real popular, if you’re saying: We need to have people making less money and having fewer options in terms of employment. But if you cloak it in this language of: we need to bring down the inflation, something that, as Jon said, hurts rich people a lot more than working people, because who has the most assets for the inflation to have an effect on? It’s the rich. It’s a very useful language-base for them to rely on.

NR: So just to drill down into this dynamic a little bit more, what does it matter to Bank of America’s wealthy clients that wage growth is going up and inflation is going up? Because I think the instinct is to say: Oh, it’s going to hurt profits, it’s going to hurt innovation or whatever. But profits are also going up in a lot of sectors. So I wonder if either one of you could just explain what they’re so worried about?

KK: Well look at the wave of unionization that’s taking place now. I think it’s very hard to separate that from the options that workers have at this point in time, the decisions they can make to leave for another employer if they don’t like the situations there. I think there’s a very tight connection between the opportunities that organized labor has and the freedoms that workers have, just to name one example.

JS: Yeah, I mean, it’s about two things. It’s about money, and it’s about power. And in both cases, regular working people and their interests, and the interests of the corporations are just directly opposed. Like, it’s just a fact. 

There’s a certain amount of money that businesses make, and if workers make more of it — if they’re getting more of it — then the people who own the businesses are making less profit, like there’s no way around that. And as Ken says, it’s also a direct question of power, like when there is a lot of demand for labor, people feel that they can unionize, that they have the leverage versus their employer to be able to go ahead and do that. And so you see the wave of unionization that you wouldn’t see in a less tight labor market. And you just see working conditions getting better in a lot of places, like just all the things that go along with having a job — like the condition, scheduling, all kinds of basic things like that. So low unemployment means much less leverage for employers. And they don’t like that.

NR: Jon, you’ve been researching the history of the Federal Reserve. Can you place their current thinking in the context of history and how they worked over the past few decades?

JS: Yeah, well, it’s good to go back to World War II and the Depression, which were huge watersheds for people understanding how economies truly worked. And the main thing from that period that people realized was that Keynesian economics does actually function as it’s supposed to, in the sense that it can prevent depressions by having the government spend money. It’s something that’s very basic and seems obvious, but was not accepted before that, and before it was demonstrated by World War II, where the depression was ended by the government just spending lots and lots of money on things. 

And there’s a Polish economist who wrote a famous essay towards the end of the Second World II, where he said that we now know that the government can create what he called synthetic booms, meaning that we can choose as a society that we want to have a booming economy — meaning low unemployment, high wages, all the things that are good for regular people. But he said: You have to confront the fact that the business world is absolutely going to hate that, is going to hate the idea of constantly booming economies, and they’re going to try to prevent that, because it lessens their power in the society. 

And ever since then, so you know, this is, as I say, 1944 when he wrote that in the aftermath of World War II, there’s been a ferocious, constant fight about that on behalf of the business community in the United States and elsewhere. But it’s always, as Ken said, hidden behind euphemism. And so throughout the period since the Second World War, whenever the economy has been getting too good for regular people, generally speaking, the Fed has stepped in to stop that. And inflation has been the excuse, but largely not the actual reason.

NR: So what do you think the message that needs to be going out right now is? I mean, I’m sort of struck by how good at being paid attention to Larry Summers is. [Laughs.] He said in June that he thinks that we can’t get out from inflation without having five years of unemployment above 5 percent, or one year of unemployment at 10 percent, which is pretty shocking. But I guess I wonder how you think that that narrative can be countered?

KK: I think when someone tells you who they are, believe them. I think that there’s a sense that oh, it’s Larry Summers, he’s some guy in the right wing. I’m working on a story now about —

NR: But he’s not on the right wing! He’s a Democrat.

KK: Or right, sorry — that he’s a fiscal hawk, let’s say. But I’m working on a story now, I was just looking at some of the earnings calls from the big banks, and I believe it was Bank of America, they were talking about that they had undertaken a stress test, assuming a 10 percent unemployment rate, and they were sort of bragging to the investors on the call saying: Hey, guys, look at how profitable we still are, even under conditions of 10 percent unemployment. And I was sort of shocked at that. I wondered: Why did they pick 10 percent? 

And then I started reading, and just like you said: Larry Summers has also said 10 percent. Other prominent, macroeconomic figures have talked about 10 percent unemployment. So take seriously that this is something they’re considering. I don’t know what’s going to happen in the future, but extremely powerful people that are listened to in the halls of power, if not among the general public, are proffering this. At the same time, I have to imagine that there’s some chance that they’re going to pursue something like that. And that would be devastating, because 10 percent unemployment, right, I mean, the millions of people that would be out of work at 5 percent —  just imagine twice that. So anywhere within that range, they seem to be very seriously considering.

And what’s implicit in this discussion is this idea that by doing that, I think what they try to say is: Oh, that’s going to decrease inflation. Again, if you look at some of the public macroeconomic analysis, and the stuff that I have gotten in terms of the internal reporting, it’s well understood that there’s not a strong relationship between wages and this specific type of inflation that we’re experiencing right now. It’s widely understood that there are two main drivers for it. One is the supply-chain problems that we’re experiencing, particularly in Southeast Asia and China, where, because of Covid, they’ll shut down an entire factory or facility whenever there’s a Covid case, and that slows down shipments and exports. They identified that as one of the leading causes. And the other one is the sanctions that we have placed on Russian oil, effectively taking off the second biggest oil producer on the global market, in addition to the Saudis holding down oil production, are not willing to expand it further. And oil being the main resource of the 20th and 21st century, those are the two main drivers of inflation. That’s understood internally.

On the other hand, when you look at what they say publicly, they try to insinuate that there’s some kind of wage connection to these things. And that’s very dubious. And again, internally, they don’t talk that way. That’s what they’re saying publicly. So I hope that the public can be appropriately skeptical when they try to pass off this idea that somehow wages are driving the inflation, because implicit in that is the idea that: Oh, we need to bring down the wages and that will fix inflation — which it won’t.

NR: Yeah, I guess what I’m trying to ask is, like: Biden is saying that. He is pointing to those drivers of inflation. He’s pointing to, in addition to the sanctions, I think there’s other supply-chain issues that have been created by Russia’s invasion of Ukraine around agriculture. But it’s not really working. [Laughs.] I mean, maybe it’s just the position I’m in, but it feels like the fiscal hawks are constantly eating at the edges. And for some reason, their explanation of what’s happening is more easily accepted.

KK: Well, the entire media is amplifying the financial centers of power and the story that they’re telling about the economy. Because when Biden says these things, first of all, it just seems like he’s trying to defend his record. And crucially, he’s not identifying a bad guy here. He’s saying that: Oh, it’s not wages, and so on and so forth. You have to say: The Fed Chairman Powell is a fiscal hawk who was appointed under Trump, is a registered Republican — which he is — which is not a fight that the president is willing to take on, because he’s such an institutionalist. In the same way that he doesn’t use the bully pulpit to go after people in Congress, as Trump did, he doesn’t use the bully pulpit to criticize the Fed policy, as Trump did as well. 

The Fed Chair Powell was discussing hiking interest rates during the Trump administration. And Trump very publicly said: If you do that, I’m gonna find a way to fire you. This guy is going to destroy the economy if he does that. Turns out they didn’t hike rates under the Trump administration. There has been no commensurate communications push on the part of the White House or Biden to try to identify rate hikes as the enemy. So I don’t think it’s quite enough to just say: Oh, it’s this and that. You also have to identify who the malevolent actor is. And for institutionalists like Biden, I don’t think he’s going to do that. They view, culturally, the Fed as the Supreme Court. Oh, it’s a political institution. We’re not supposed to weigh in, I don’t want to bias it. It’s ridiculous! It’s not an apolitical institution. Why is the chair a registered Republican if it is?

JS: I was going to say that the Democrats have historically made one key mistake, which is not setting up their own huge propaganda TV network. Propaganda doesn’t even have to be bad. Propaganda can be true. You have to have some way of telling your own side of the story. And all the Democrats have is Joe Biden coming out looking tired and saying a few things about inflation and corporate profits, and stuff like that — and supply chain issues. And who hears that? Nobody. To communicate with people, you need to say the same thing over, and over, and over, and over again, and have a bunch of people saying it. And the Democrats have never been serious about that. They’ve never wanted to do a positive, good version of Fox News, which in theory is possible — something that tells us your side of the story, but does so by being honest. And they could have that they just have a culture of refusing to take their own side.

NR: Well and a very corporate-backed set of politicians as well.

JS: Yeah, that’s exactly right. Because to be honest about this, they would have to tell the truth about their own financial backers, which their financial backers. Yeah, Biden,

Biden’s vacillating language of this is a really great depiction of the problem when you have a labor party that is split between labor support and finance, where he can kind of try to defend labor against charges that it’s driving this inflation, but he can’t really attack the bad guy that’s articulating the opposite point, because he’s getting money from a segment of them. They’re in a very awkward position.

NR: I feel like this was very well highlighted on Sunday, when they had the vote-a-rama about the amendments to the budget reconciliation bill, the Inflation Reduction Act. And the two major changes that happened in all of the negotiations were two big favors to private equity. First, pre-vote-a-rama, Sen. Sinema negotiated the carried interest loophole, which was going to be closed by Manchin’s version to be taken out of the bill. And the carried interest loophole allows hedge fund managers to basically take the money that they receive from the market, but not have it taxed at the rate that you would have for-profits from the market, but to have it taxed as normal income. 

And then the second was this amendment that was passed on Sunday, introduced by Sen. John Thune, Republican to exempt private equity-owned businesses from the 15 percent minimum tax rate on large businesses that was in the Inflation Reduction Act, and several Democrats, especially ones who are in hard-to-win states — Warnock, for instance — voted for that amendment, which ultimately passed, which is all to say that even in these pieces of legislation that started out as very ambitious, they just get whittled away, and start doing favors to private equity. 

But I guess I just wanted to reflect on, broadly, what this says about how our economy works, and how it’s actually really possible to change it because the politicians that are in power right now are so entrenched with these high-dollar firms. And maybe the only way to change is to reverse Citizens United. I don’t know. [Laughs.]

KK: I think we need an authentic Labor Party. We can’t have this Frankenstein, of a partial Labor Party, partial private equity firms. And to recognize that when you’ve got all these big corporations endorsing the Democratic Party over the Republican Party, that’s not a good thing. [Laughs.] You know? I think there’s this attitude that it’s like, oh, this is great, he’s established a foothold in the center. People can recognize that it’s like, well, that comes at a price. You’re not getting private equities, political contributions, without something they’re expecting in return. And I think that the decline of organized labor has created a vacuum in terms of the resources that a political party that Republican or Democrats can turn to for resources that they need. And so you know, they’ve turned to private equity, to fill the gap that’s emerged. So I think you need organized labor to return as a sort of mediating force in society.

JS: Even George Shultz, who was secretary of state under Reagan said at a certain point that like we did too much to kill unions, like America needs strong unions now. And he was right! He saw the damage that not having strong unions caused to America overall. And he was a rare Republican in being honest about that. 

You may remember that after the 2008 economic collapse, Dick Durbin, who is the Democrats’ Majority Whip in the Senate, said: The big banks, frankly, own this place. And he was being completely honest! He doesn’t seem to have been interested in doing anything about that since then, but he was telling the truth.

NR: I think another thing I wanted to talk about is, Jon, I wanted you to talk about the Adam Smith quote that you included in the piece. Maybe you want to read it and say how it applies to our current situation?

JS: Well, Adam Smith lived in the 1800s. And he’s sometimes seen as one of the first economists. And he was so new that, in his lifetime, I don’t think was generally referred to as an economist. He was seen as something called a moral philosopher. 

Anyway, in 1776, the same year as the American Revolution and as the Declaration of Independence, he wrote a book called “The Wealth of Nations.” And that has been championed by the right in the United States for a long time, which demonstrates that they truly never ever read anything. Because it’s the source — there’s a famous quote about the invisible hand, like you leave the market alone and then as though it’s led by an invisible hand, it makes things better for everyone. 

But it demonstrates they’ve only read that one sentence, because the rest of the book, in a large measure, is him just excoriating the business world. And one of the things he said is: “[H]igh profits tend much more to raise the price of work than high wages … Our merchants and master manufacturers complain much of the bad effects of high wages in raising the price … they say nothing concerning the bad effects of high profits. They are silent with a regard to the pernicious effects of their own gains. They complain only of those other people.”

So in other words, Adam Smith was actually, in many ways, such a radical that he couldn’t write a column for an American newspaper. And what he meant by that was that this is the politics of inflation: like when the prices go up, who gets blamed? Well, who gets blamed is regular working people — they’re asking for too much money. And nobody is mentioning the profits that these companies are making that contribute to higher prices. 

And no one is looking at that right now, for the most part. And profits in the United States as a share of the economy are at a crazy, ridiculous, historic high. They’re about 11 percent. And historically, they were down more at 6 or 7 percent, for the most part, until the last decade when corporate power has increased, so the corporate profits have been going up and up. And so Smith was absolutely right. Like he described the world that we live in right now, today, almost 250 years ago.

NR: It’s kind of a great psychological insight, too. I mean, a very true one that one never sees oneself at fault. But we only hear from the people, the merchants and master manufacturers, because they’re the people who have the microphone.

JS: Yeah, that’s exactly right. It’s not like a natural human instinct to say that we’re suffering from this really significant problem, and it’s my fault. [Laughs.] Like, I’m doing it firstly. Like, people don’t work like that.

NR: [Laughs.] The world would be so much better if people could do that, ever.

JS: Yes, if people could ever admit that. But that’s just a fact of human nature. They’re never going to, especially people with power. And, as you say, it’s only the powerful people who have the microphones, who are saying this thing. We’re only hearing one side of the story, and if we heard the other side of the story, it would be a much healthier and more balanced society.

KK: John, can you speak to what parallels exist in the Carter administration and their handling of the Federal Reserve and the rate hikes?

JS: Well, as you say, the instinct of the Democrats is to never, ever criticize government institutions and to really never take their own side in political battles. And so in 1972, Richard Nixon was very open about telling the Federal Reserve: Listen, the economy is going to be great this year. You are not going to be raising rates. Everything is gonna be fantastic in America. 

And he got what he wanted. And things were fantastic. And he won in a huge landslide. And then, during the Carter administration, just a few years later, inflation was getting out of hand, it was very high; it was largely higher than it is now. And that wasn’t, to a large degree, because workers had it so great. It was because OPEC was raising the price of oil. But in any case, inflation was very high. And Carter hired Paul Volcker as the new head of the Federal Reserve. And he did that knowing that Volcker’s plan was to come in and jack up interest rates sky high, and cause a huge recession. And, in fact, he did do that at the end of the Carter administration. 

And 1980 was not a good economic year for the United States. Then in 1981, people forget, it was also a terrible year; ’82, not so fantastic. And it hurt Carter, and was one of the reasons why he was destroyed by Reagan in a landslide. 

Then Reagan came in and it was very, very bad for him politically. And so the Reagan administration did fight back and [laughs] was unhappy about a lot of the things that Volcker was doing. And it just goes to show that the Democrats believe so much in what they think of as good government, and technocracy generally means acting on behalf of the most powerful people in society dressed up in fancy abstract terms. In any case, they believe so deeply in that they don’t care about whether they are hurting themselves and destroying their own political prospects. It’s really, absolutely incredible. They’re one of the strangest political parties that’s ever existed. 

KK: Those are some uncanny similarities. Because, as you said, OPEC prices driving the inflation — that’s what we’re seeing today! Not just on the part of Saudi oil production, but then the Russian oil being off the market and driving up the costs since oil, then, is more scarce. I hadn’t thought of that component of the history.

JS: Yeah, I mean, we could be rerunning the ’70s all over again. And we know how that turned out for America. And we know how that turned out for the Democrats. But apparently, they don’t realize that. 

KK: Well, I would say the battle lines are being drawn. Sen. Elizabeth Warren had a very good op-ed, I think, in the Wall Street Journal, criticizing the Fed and urging them not to increase interest rates, knowing the effect that it would have on workers in the United States. And it’s a very significant step for a U.S. senator whose expertise is in finance and macroecon to take, because as I was saying before, the Democrats historically have avoided critiquing this institution. I think what remains to be seen is if much of the rest of the party will follow that lead, and take a position on this — and essentially do what Trump did and register his disapproval about that, which, during the Trump administration, they ended up not significantly increasing rates. I don’t know for sure if that’s related, but I imagine it would be. 

And, crucially, the White House has a role to play in this sense. And if you look back when Biden chose to keep Powell on as Fed chair, which was a question, because he’s a, as I said, registered Republican, Trump had appointed him. And he’s known to be anti-regulation, financial regulation, and these were all points against him and made it unclear if Biden was gonna sack them. Powell ended up affirming his purported belief in the goal of full employment, which is basically the opposite of keeping inflation down. And that was understood by the Democrats at the time to mean: Oh, OK, great. So he’s not going to go after workers, he’s not going to significantly increase these interest rates. 

And we’re seeing that now that’s not true. And so there’s going to be a reckoning, and it really depends on how the Democrats are gonna respond to that.

NR: Yeah, I mean, I think a Labor Party would be great. I think that we’re in a much more exciting time than we were in a few years ago. But I also am concerned about Biden’s ability — I mean, as I’ve been kind of hitting on this entire podcast — I’m concerned about the ability to control the narrative and specifically about how history is going to be rewritten around the beginning of his presidency. Because when he came in, and they wrote the first bill responding to the pandemic, the American Rescue Act, it was this enormous piece of legislation. And the way that Biden framed it was specifically saying: We’re learning from 2008. We have to go bigger — much bigger — to save ourselves from a recession. 

And Janet Yellen, at the time, the Treasury secretary, was like: This isn’t going to affect inflation. And now she’s saying: I was wrong. Inflation did go up. 

And that, to me, is pretty scary. Because it means that the next time that there’s a big crisis, and we need a big social spending bill, people won’t point to 2008 anymore, they’ll point to that. And they’ll say: Look, that set America on a course where inflation was going up and up and up — so I don’t know, I sort of think that it would be great to have a Labor Party, but to me, the labor movement is still in a very sensitive stage. And hopefully, it’ll start domino-ing out across Starbucks stores, across Amazon warehouses. But there’s going to be a lot of opposition. So I’m still feeling pretty tentative about the future.

JS: You are absolutely right. Because at the next crisis, that is the story that’s going to be told. And what people won’t say is that if you compare the recovery from the pandemic recession to the recovery from the 2008 housing bubble collapse, you would much, much, much rather be a regular person right now than what people went through in 2008, 2009, and 2010. One of the reasons why the Democrats did so horribly in 2010, was because they refused to reinflate the economy, to sort of pump the air back into it. And they did that this time. And all of the jobs that were lost in the pandemic recession have now been regained. And so that part of the story is a huge success. But you know, as Ken pointed out, they will not tell the story in any kind of compelling way because it would require the story to have villains, and many of those villains are their campaign contributors.

NR: Jon, Ken, thank you for joining me on Intercepted.

KK: Good to talk to you guys.

JS: Thanks so much for discussing this. It really is an important subject and I hope people can pay attention to it.

NR: And that’s it for this episode of Intercepted. Follow us on Twitter @Intercepted and on Instagram @InterceptedPodcast.

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