Central Banking in the Planetary Impasse
Disintermediation, elite isolation and technocracy
Politicians across the West relinquished their stewardship of the societal interest increasingly after the neoliberal counterrevolution. In his characteristically scathing style, Michael Lind noted in an email to the present author that “Congress delegates foreign policy to the president, economic policy to the Fed, and social policy to the Court.” This was a slow-moving historical process of transformation driven by the decline of intermediary institutions between the working and middle classes on the one hand and elites on the other. The decline of intermediary institutions was at once bottom up and top down.
Americans were once famous for being joiners. The United States was long the world leader in free associations—ranging from reading groups, mechanics’ societies, church congregations, labor unions, neighborhood associations, and political parties. It’s well-known that union membership has been in secular decline. But the decline in union membership is only the tip of the iceberg. Church congregations have been shrinking too. The old buildings that housed free associations like The General Society of Mechanics & Tradesmen of the City of New York have become little more than exotic rental spaces for event managers. Free associations of ordinary people interested in pressuring politicians were fairly common until the neoliberal counterrevolution. They have been almost entirely replaced by AstroTurf organizations funded by politically-motivated oligarchs, without any organic links to situated communities at the grassroots.
The decline extends beyond mezzanine social institutions. Americans, Robert Putnam has shown, sign fewer petitions, belong to fewer organizations, know their neighbors less, meet with their friends less frequently, and even socialize with their own families less often. So, part of what has driven the erosion of intermediary institutions is the Great Inward Turn that followed the dashed hopes of the Sixties—this is the Bremen-Lilla-Curtis thesis. As the creators of How I Met Your Mother had the protagonist declare: a real red-blooded American wants to sit on his own couch, eat his own chicken wings, and watch his own TV.
As Ezra Klein argued most recently, the two parties were less differentiated in the half-remembered foreign world of midcentury America. And both, particularly the Democratic Party, were complex multi-tier structures where, not just labor unions, but (often corrupt) local party bosses—intermediaries between provincial elites and working classes on the one hand and the national political elites in Washington on the other—had a measure of say-so on the policy agenda. This structure has by now been completely replaced by top-down political-media machines tightly controlled from Washington—responsive more to bundlers and big donors than local political leaders, and a fortiori, to rank-and-file party members. It is hardly surprising, then, that major party membership has been in secular decline since the Sixties.
Whatever drove the process of disintermediation, the result is that elites became insulated from realities on the ground, from what was going on with ordinary people.
Elite insulation is exacerbated by assortative mating on educational attainment, called educational homogamy. The correlation between the educational attainment of husbands and wives was lowest at the peak of the midcentury male breadwinner-female homemaker model of the middle class family in the mid-1960s. Since then, the rise in the number of college-educated women has increased the odds of educational homogamy. Professional class men used to routinely marry their secretaries. The norms have changed so much that doing so now might lead to outright social ostracism.
The upshot is that the prestige-schooled meritocracy (the professional class sensu stricto) has become a veritable deme—a relatively isolated genetic population that reproduces itself not only through the the intergenerational transmission of financial, cultural and social capital, but through the very direct intergenerational transmission of genetic capital as well. These modes of class reproduction explain why prestige schools take in more kids from the top 1 percent of families by income than the bottom 50 percent.
Elite isolation is further exacerbated by the geographic sorting of the social classes, described by Charles Murray in Coming Apart. The professional class is largely confined to the superzips. These are places where, as David Brooks put it, the BoBos live in paradise.
So, elites—in government, in the major corporations, in the agenda-setting media institutions—are really isolated from the country they preside over.
The way things work in Washington now, policymakers rely on bundlers and donors to power their electoral campaigns, on pollsters to gauge public opinion, on technocratic experts to understand reality and policy design, and spin doctors and colluding media elites to manipulate and persuade audiences. Everyone involved in providing any input in policymaking, public or private, can fit inside a single football stadium. And you can rub shoulders with them all if you stay in downtown Manhattan and frequent the right spots for a year or two. So, as we saw with BlackRock, JP Morgan, and Google, power is exercised from a great height, by a small handful of elites, in virtual isolation from everyone beyond a hundred miles inland of the US coastline.
The isolation of the elites has meant that developments on the ground often go unnoticed in the halls of power. Although less-educated whites started dying in rapidly increasing numbers of drug overdoses, suicides and alcohol poisonings in 2000, it was not until 2015 that anyone in the professional class noticed—this was when Case and Deaton published their famous study on ‘deaths of despair’. The only public figure to truly comprehend the depth of support for Donald Trump in the lead up to the GOP primaries in 2016 was, not coincidently, Michael Moore, who could do so only by stepping out of the New York media bubble and tour the country in person. No one else saw it coming.
More generally, disintermediation and elite isolation blinded US elites to the breakdown of elite-mass relations as it was unfolding in the decades preceding the Trump campaign. Of course, elites have high-powered systems in place to observe public attitudes and opinion. But, as in counterterrorism surveillance, you can only identify the pattern if you’re looking for it. Even after the great expansion of the surveillance state of the preceding twenty years, the Capital Riot came out of the blue. The world’s most powerful microscope is useless to anyone who doesn’t know what they’re looking for.
A unity of interests has come behind the Biden solution. This was evident in the fawning media coverage. But perhaps better illustrated by campaign finance. Usually, presidential elections costs a few billion, quite evenly split between the parties. In 2020, Dems heavily outraised the GOP—a degree of polarization in the money primary that has no precedent in US presidential elections. But it was hardly surprising to anyone paying attention: the professional class as a whole threw its weight behind getting rid of the Orange Man in the White House.
The compactness of the elites and the unity of interests that have coalesced behind the Biden solution have created a great capacity for action. Meanwhile, ‘the threat from below’ revealed by the catastrophe of 2016, together with the ticking of the electoral clock, has concentrated minds on doing whatever it takes to repair elite-mass relations and break the class-partisan deadlock. This is the context in which we must see the wagers of the Biden White House and the party elites in Congress. These wagers are in earnest. They are commendable. But are they going to be enough? Can they temper the class war at all?
The tectonic forces of class politics have hardly abated. Recall that, not only did Trump win 9 million more votes in 2020 than 2016, his share of the vote increased in 72 percent of US counties. The Capital Riot and the vaccine rollout have revealed that a substantial chunk of the populace has lost all faith in elites and their institutions—they simply don’t trust the media, the government, the experts, or the professional class wags scolding them from their thousand fortifications. So, the trench deadlock of class-partisan warfare, and the breakdown of elite-mass relations, has not abated in the least. If anything, it has intensified.
‘Cultural symbols, produced and manufactured by coastal elites, are pumped out over the airwaves to Flyover Country,’ writes essayist Anusar Farooqui, who is known online as the Policy Tensor. ‘Since this is a one-way traffic, you have this deep structure where the working class watches, from its redoubts in the countryside and distant exurbs, its culture ridiculed in sullen, enforced silence. This is the constantly churning motor that has reliably reproduced, indeed enhanced, class resentment...’
What I am saying there is that the structural driver of the class war is the one-way conversation—a simple consequence of disintermediation—going on between professional class coastal elites on the one hand and the provincial middle class and working class people of flyover country on the other. So, good policy and messaging is not going to be enough.
In order to temper the class war that is tearing the country apart and threatens to rule out a solution to the planetary impasse, the United States needs to rebuild intermediary institutions. This is the domestic counterpart to the feedback pipes Tim Sahay and I recommended in US Grand-Strategy in the Planetary Impasse (do find the audio of my remarks). The problem there is similar: you’re going to run into blockages due to ‘the response function of the peasant’ which brought down the American effort in South Vietnam. We argued that, if Kennedy had a hotline to the peasant in Vietnam, maybe the catastrophe could’ve been avoided. You need something like that to create a moral economy of discipline in the global transition to a low-carbon economy.
Transitioning to a low-carbon world is a hard problem. Not because it is technically challenging. Indeed, technically, it is a solved problem. (Tim has all the details.) Rather, the challenge is political—one that goes beyond how to contain political economy actors like fossil interests. The real challenge is to create a robust sociopolitical alignment of forces that can see through a decades-long transition.
Given the difficulties of solving this problem, it is understandable that intellectuals who have been red-pilled on climate catastrophism want to double down on technocracy. Adam Tooze has argued that central bankers should step up. Put simply, the idea is that the Fed should backstop green assets and discourage brown assets, for instance, in its asset purchases. This can only be done if the Fed can tell green assets from brown—a problem that can only be solved with a public green ratings agency, as Tim and I have argued. (Zane Rubaii is now helping us write the white paper.) Indeed, the BoE has noted the difficulty of doing this without a kosher signal of what exactly is green and what is not:
A recent paper from the Bank of England noted, for instance, the lack of any objective metric by which to “tilt” its purchase of corporate bonds to influence companies’ efforts to reduce their carbon emissions.
Mervyn King and Dan Katz. “Central Banks Are Risking Their Independence.”
But even if Congress legislates our green ratings agency into being, the tilting of financial balance sheets of all the hard currency-issuing central banks and asset managers is not going to solve the problem of climate finance. Like ESG and Carbon Pricing, it is a nonsolution, although for slightly different reasons.
A Fed backstop for green assets would lower the borrowing costs of those doing the most to transition us to a low carbon world. This is how the New York Times chose to frame our proposal and those of others at the forefront of climate finance thinking in the United States:
Recently, a growing chorus of economists, legal scholars and policy experts has proposed a suite of initiatives that could replenish the public employment ranks — which have yet to recover from the Great Recession — and boost the credit lines of states and cities as the climate emergency deepens, all by relying on the inexhaustible monetary powers of the Federal Reserve. [Emphasis mine.]
Alex Yablon. “Could Banking Magic Save Cities From Climate Disaster?”
Actually, none of the proposals want to give the Fed the authority to do anything other than provide liquidity to green assets. Yakov Feygin and Pooja Reddy call on Congress to create a government-sponsored entity along the lines of Fannie and Freddie to organize the municipal bond market. Tim Sahay and I also call on Congress to create a public green ratings agency so that all financial actors can tell green from brown. Finally, and most importantly, Saule Omarova and Robert Hockett again call on Congress to create a National Investment Authority to finance public infrastructure and the energy transition. None of us is demanding that the Fed interpret its mandate to encompass encouraging green investment. All of us are asking, in different ways, for the United States government, through an act of Congress, to backstop the energy transition.
The temptation to hand this off to the technocrats—and relying on their “perceived nonpartisan super-competence,” as Yablon put it—is strong given the panic among the climate red-pilled. But it is a temptation that must be resisted.
Mervyn King and Dan Katz, writing for Bloomberg, have argued that handing off the optimization of the social welfare function to the Fed is a recipe for undermining the independence of the Fed. They are right. The Fed should not expand its own mandate—that would undermine its legitimacy. Merryn Somerset Webb, writing for the Financial Times, has argued against central banking ‘mission creep’. She is also right. The Fed should keep its eye on the ball. It should be ready to provide liquidity to markets, including those of green assets. But it should concentrate on doing its job of minimizing labor market slack subject to price stability. With the great revival of Okun’s ideas about the high-pressure economy, the Fed now finally seems to be on the right track. Of course, stranded assets may pose financial risks, and racial gaps in unemployment rates contain information on labor market slack, and those are very much within the mandate of the Fed technocrats to consider and act upon.
Solving the problem of global heating is not the Fed’s job. It is Congress’s job to create arms of the state that are necessary to respond to the challenge of global heating and survive the rocky road ahead. It should not abdicate the responsibility to unelected technocrats. In order to get out of this mess, the answer is not to increase the already stupendous concentration of power in the Fed, but for politicians to take power back from the technocrats. One part of that is the partial handover from monetary to fiscal policy in the management of the macroeconomy. But an even more important part is the creation of suitable eyes and ears, arms and legs, of the great apparatus of the modern state so that it can respond to the challenge of the Anthropocene.
Beyond that, the challenge for US elites, is to reverse the disintermediation of the past half century that has landed us in the impasse of elite-mass relations in the first place. No matter the consensus of the experts, none of this works without real buy-in from below.