The coronavirus pandemic has led to an unprecedented recession that has devastated the working class. At the time of this writing, over 30 million workers have filed for unemployment. Millions more face unknown health costs, possible eviction, and food insecurity due to this crisis.
As it often does in times of crisis, the Federal Reserve has stepped in. How the Fed has acted, and who has benefited from that action, should be of major concern to socialists. Not surprisingly, it has set economic policy so that capitalists who own and manage banks and large corporations are able to secure cheap credit quickly with barely any conditions, which has allowed them to stay solvent, liquid, and economically stable. Meanwhile, the relief the Federal Reserve has set up for state and local governments comes with arbitrary restrictions that all but guarantee more austerity, economic devastation, and worsened consequences of the pandemic.
The Federal Reserve continues to act as the central bank and central planner for the capitalist class rather than workers. But this doesn’t have to be so. We can fight for policies that democratize the central bank and empower the working class.
Democratize the Central Bank
The Left has a history of fighting over central bank, monetary, and credit policy in service of the working class: the nineteenth-century populist movements’ fight for affordable and equitable money and credit access for workers and farmers, Coretta Scott King’s campaign demanding the Federal Reserve commit to a full employment mandate. This is different from today, when the politics of public finance have fallen into the confining window of progressive taxation and fiscal policy. The Left today has largely forgotten that democratizing the central bank — and the money and credit policy that flows from it — is foundational to the fight to democratize our economy for the working class.
In this crisis, we need to forge a pathway for democratizing central banking and public finance to escape the financialization of our economy that has led to a hollowing out of public services. More importantly, we need to organize to spend the public dollars needed to overcome this public health crisis and recession. The Right and neoliberals have a stranglehold on what is politically possible with central bank, monetary, and public finance policy. This stranglehold is one of the main levers that enables the current austerity of state and local governments.
In addition to the public health crisis and recession, our public services have been decimated by years of divestment by both liberal and conservative elected officials. Most states and over 2,100 cities face substantial budget constraints that can lead or have led to layoffs, furloughs, and service cuts in public hospitals, unemployment benefits, food stamps, and other income supports, and much more, at a time when the working class desperately needs them. The most brutal example of this is New York Governor Andrew Cuomo’s $400 million cut to hospitals on the front line of the COVID-19 epidemic in his recent budget, despite New York City becoming the global epicenter of the pandemic.
A similar calamity has engulfed the private sector, and finance, in particular, due to the recession. The capitalists who own and run large corporations have faced staggering losses in profitability to the point of collapse, which has threatened to topple the global capitalist system. It is clear that the capitalist market is unable to coordinate the goods and services needed to fight this pandemic and stabilize the economy, and therefore cannot handle this public health crisis or recession.
What the Federal Reserve Is Doing
Currently, the Federal Reserve is continuing its class-warfare policy, as it has during all economic crises. Its policies of quantitative easing, cutting the fed funds rate to zero, buying corporate and finance bonds, supplying $3.5 trillion in low-interest loans to Wall Street — even much of its lending to “main street” have allowed for an economy where Big Finance and Big Corporations have easy access to cheap credit, liquidity, and economic stability in order to ensure their profitability. These Federal reserve policies for the 1 percent are enacted while the working class experiences utter devastation and disruption of income loss, coupled with the shuttering of the public services needed to withstand a public health crisis and a recession.
The Federal Reserve policies that are said to help the working class the most, such as direct lending to state and local governments, come with numerous arbitrary regulations and strings attached that the finance and corporate sector do not have to overcome. For example, the Federal Reserve has arbitrarily capped state and local relief at $500 billion with no commitment to lend at the current fed funds rate of 0 percent. This means state and local governments will have to borrow at higher interest rates than the private sector, and the amount they can borrow will also be much lower.
Other arbitrary restrictions have had a disproportionate impact on working-class communities of color. An example of this is the exclusion of territories, like Puerto Rico, which, already ravaged by austerity, find accessing relief even harder, are not eligible for Fed support. Another example is only cities with a population of 250,000 or counties with a population of 500,000 can access Federal Reserve lending — all other cities and counties will have to go through state governments to get access to the Federal Reserve’s relief. In practice, this means only 87 cities and 140 counties out of over 2,100 cities in need of some form of fiscal relief have access to the Fed. This means areas like Flint, Michigan — a city with a large black population — and the county Flint is in, Genesee County, and other similar cities and counties, do not have direct access to Federal Reserve support.
The Federal Reserve has set up an easy and fast process for finance and large corporations to get the financial assistance they need, with an open-ended spending commitment to ensure profitability for the private sector. For state and local governments, though, it has created a byzantine, cumbersome process with a limited spending commitment that does guarantee state and local governments will be able to meet the public’s needs of the pandemic and recession.
What Socialists Can Demand
So, what can socialists demand of the central bank? The Federal Reserve could easily make an unlimited and permanent commitment to buy state and local governments’ bonds until they are out of this crisis and recession, which is the policy position they have adopted for finance and large corporations. The Federal Reserve can lend to state and local governments at 0 percent interest and suspend payment of such debt until the duration of the crisis.
The Fed could also commit to refinancing existing state and local debt, so that we the public are not burdened with interest costs of past debt. Taken together, these policy changes at the Federal Reserve would allow the fiscal room necessary for state and local governments to fight this crisis and come closer to mirroring commitments the Federal Reserve has made to the finance and corporate sectors.
Thankfully, socialist elected officials have been organizing to demand exactly this from the Fed. Congresswoman Rashida Tlaib has demanded the Federal Reserve have a permanent and unlimited commitment to supplying affordable credit (at or below the Fed Funds rate of 0 percent to 0.25 percent interest) to state and local governments; allow state and local governments to refinance past debt through the Fed, instead of the private finance market, under these affordable credit conditions; and allow all states, localities, and territories of the United States to have access to such financing.
These actions would take most of the private finance sector out of financing state and local budgets, and bring us closer to having public and democratic control of state and local finances. This is a vital step in order to ensure funding for essential public services we need to overcome this pandemic and recession.
These efforts have led to a campaign called “Right to Recovery,” taken up by Chicago Socialist City Council members Rossana Rodriguez-Sanchez, Carlos Ramirez Rosa, and Byron Sigcho Lopez as well as Local Progress, a national network of socialist and progressive elected officials, to demand the Federal Reserve and Congress support state and local governments in a manner that ensures a just recovery from this pandemic and recession. We need concerted efforts at the grassroots level with socialist and progressive elected officials to pressure the Federal Reserve and Congress to make these changes. Labor unions, socialist organizations like DSA, and electoral organizations like the Working Families Party will have to fight for these efforts at local and national levels, as the Chicago city councilors have called for.
This would mean more than just ending austerity, but shifting public spending to universal testing, contact tracing, and health care. It also means income support locally for the working class like $2,000 universal basic income that can support those left behind by the federal CARES act, such as undocumented immigrants, informal workers, recipients of social security, and poor people who receive means-tested benefits.
This is what is needed to get relief from the shelter-in-place orders, to overcome this public health crisis and recession, and the austerity that has emerged from it. The indefinite nature of the shelter-in-place orders has given an opening to right-wing politics of opening the economy back up, consequences be damned. Only a socialist vision of how to overcome this crisis and recession can overcome such a rightward and neoliberal reaction.