May 16, 2019
(This post first appeared on my Patreon page.) Earlier this month, New York Times reporter Binyamin Appelbaum wrote a moving piece on Ady Barkan. Ady is a lifelong activist who is now dying from A.L.S., often known as Lou Gehrig’s disease.
It is an incredibly sad story, Ady is just 35 years old. He is married with a young son. While I’m sure he would like to spend the time he has left with his loved ones, he is determined to use whatever energy he can to push for universal Medicare.
I was sitting next to him last month when we were both testifying on universal Medicare. Ady was in a wheel chair, having lost control over most of his muscles. He could not speak and instead had a mechanical voice speak out the words he typed.
It was clear that it was not easy for him to be there. He was sweating profusely in a room that was not particularly warm. It was a very impressive show of determination for a cause to which he is very committed.
I actually first met Ady through his work on a different topic, the Fed Up campaign, which was designed to push the Federal Reserve Board to prioritize full employment and higher wages. Fed Up was about bringing the voices of ordinary workers and community activists into the debate on monetary policy. Ady was one of the lead organizers with the Center for Popular Democracy, the group that spearheaded the Fed Up campaign.
As Appelbaum points out in this piece, the Fed Up campaign was remarkably successful in getting the Fed to take the concerns of working people more seriously. In general, the Fed is far more responsive to the concerns of the financial industry.
I recall a meeting back in 1994, in which one of the most liberal Fed governors ever, explicitly made this point to me. The Fed has a dual mandate, to push for high employment and to keep inflation low. These can be in conflict, as when a tight labor market leads to upward pressure on wages. The higher wages then get passed on in higher prices. Clearly this was the story in the 1970s. It has not been especially a problem in the decades since, largely because wages have rarely been rising rapidly.
I was arguing that the benefits from lower unemployment were so great, that the Fed should be willing to risk the possibility that inflation might rise slightly. To be clear, we were talking about a 0.5-1.0 percentage point increase in the inflation rate, not double digit inflation. We were looking at the same economic models, which all show inflation accelerates modestly in a tight labor market. It doesn’t suddenly soar into the double digits.
After I argued my case, he made it very clear that, while he viewed lower unemployment as desirable, low and steady inflation was essential. He did not want to risk even modest increases in the rate of inflation to put millions of people back to work.
The Fed Up campaign was about countering this asymmetry. We recognize the importance of keeping inflation under control, but it is not acceptable to condemn millions of people to unemployment and poverty.
Furthermore, a tighter labor market gives tens of millions of workers in the middle and the bottom of the wage distribution the bargaining power they need to secure higher wages. The only sustained periods of real wage growth in the last four decades have been the period in the late 1990s, when unemployment fell to a year-round average of 4.0 in 2000, and the last four years of this recovery, in which the unemployment rate is now even lower.
It was not a given that the unemployment rate would be allowed to fall to 3.6 percent, or even 4.6 percent. In 2014, a poll of the Fed’s Open Market Committee (FOMC), which determines monetary policy, found that the median estimate of the non-accelerating inflation rate of unemployment (NAIRU), the effective measure of full employment, was 5.4 percent. This meant that in the view of most members of the FOMC, if the unemployment rate fell below 5.4 percent inflation would start to spiral upward.
As the unemployment rate began to approach this level, many members of the FOMC began to call for the Fed to raise interest rates to keep unemployment from falling lower. They also voted for higher rates at meetings.
The pressure applied by the Fed Up campaign acted as a counterweight to this pressure. It brought public attention to the importance of Federal Reserve Board. Decisions on interest rates that were usually done in the darkness of business pages were instead front page news. In this context, raising interest rates was not as easy as it might have been otherwise.
Of course it helped enormously that Fed Up had allies at the Fed, starting with then Chair Janet Yellen, who met with Fed Up and encouraged other top officials at the Fed to do so as well. Other allies included people like Lael Brainard, a Fed governor appointed by Obama, and several Fed district bank presidents, including Charles Evans, Narayana Kocherlakota, and his successor at the Minneapolis Fed, Neel Kashkari. It helped that we also had some very prominent economists arguing the case, including Joe Stiglitz and Paul Krugman, both Nobel prize winners, and Brad DeLong and even Larry Summers.
We can’t know the counterfactual of what the world would look like without Fed Up, but the fact that unemployment was allowed to fall has led to enormous benefits for those at the middle and bottom of the wage distribution. The people who got jobs in this tighter labor market were disproportionately black, Hispanic, people with less education, and increasingly people with criminal records. These were also the people who saw the most improvement in their ability to secure wage gains as a result of a tight labor market (see here, here, here, and here).
My reason for raising this in the context of Ady Barkan is a line in Binyamin Appelbaum’s piece. He reported that an internal memo of Fed Up’s main funder (a foundation started by a young Silicon Valley billionaire) indicated that it didn’t see much likelihood that Fed Up could have an impact on monetary policy. Fortunately, this foundation ignored this warning and took the risk of supporting Fed Up anyhow.
The same is not true of the large established liberal foundations, like Rockefeller and Ford. These foundations, which give out hundreds of millions of dollars a year, could not be bothered with something like Fed Up. Trying to pressure the Fed to adopt a monetary policy that was more supportive of low income people and minorities put them too much outside of their comfort zone.
If there had been an education or job-training program that benefited even one-tenth as many people, these foundations would have been tripping over each other to throw money at it and take their share of the credit. But the idea that what low-income people needed, first and foremost, was not an anti-poverty program designed by the government to help them, but rather putting an end to a monetary policy that hurt them, was a step too far. They could not interest themselves in an effort to restructure monetary policy to help rather than hurt the most disadvantaged.
For this reason, it is especially important to highlight the success of Ady Barkan and the Fed Up coalition in helping to change the behavior of the Fed. The fact that a small group of activists were thinking outside of the box, and a relatively small upstart foundation was willing to support them, has made a big difference in millions of people’s lives.
People in policy circles and the foundation world should know this. Too often it seems that the motto of the liberal Washington establishment types is “we have been losing for forty years, why change now?” The success of the Fed Up Coalition is a really good reason why they should change.