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Does the Public Get a Say on Interest Rates?

close-up photograph of Canadian bank notes covering politician's face

Canada is in the midst of a housing crisis – the average cost of a house has risen to over $700,000 while the cost of renting has also skyrocketed. The country is also facing inflation with a high of eight percent at one point and food prices that keep increasing. After years of very low interest rates, and in response to rising inflation, the Bank of Canada has raised interest rates eight times since April of 2022. While inflation has fallen, it still persists, and the Bank has not reached its target of two percent. With the cost-of-living problem and the worry that Canada might enter (or is already in) a recession, some politicians have called on the Bank not to raise interest rates further. Nevertheless, economists have expressed worry about the political influence on the central bank. Is it appropriate for politicians to attempt to influence monetary policy in this way?

Something of a controversy emerged at the end of August when British Columbia Premier David Eby issued a plea to the Bank of Canada to pause any potential rate hikes. With the rate now at five percent and inflation still present, there was concern that further hikes were on the horizon. In a letter to Bank of Canada Governor Tiff Macklem, Eby pleads to consider the “human impact” of increasing rates again and claims that unnecessary increases would pose a danger to both homeowners and renters. The Government of Canada and the Bank of Canada have had an agreement since 1991 that the Bank would commit itself to an inflation target of two percent, and Macklem has been firm in insisting on hitting that target: no more and no less.

In response to this unusual public plea from a politician to the central bank, some economists are expressing frustration. UBC Okanagan associate professor Ross Hickey has called Eby’s move a “reckless act.” The appeal jeopardizes the impartiality, independence, and non-partisanship of the bank.

We don’t want our central bank to respond to politicians at all, it’s independent. It’s akin to the Supreme Court of Canada, we don’t want the Supreme Court of Canada to be responding to what politicians say in letters … we want the Bank of Canada to follow its mandate to pursue keeping inflation at a target of two percent per year.

Hickey is adamant that asking a justice to change their decisions to suit an appeal on various people’s behalf would be wrong. As Hickey describes the move, “I understand you’re independent, but I still want you to do something for me, that’s gobbledygook.”

The situation became more nuanced when the Conservative Premier of Ontario, Doug Ford, issued a letter of his own five days later similarly calling on the bank to halt hikes making it difficult for people to make ends meet. Having entered into a black-out period prior to rate change announcements, the Bank did not respond to either letter. Nevertheless, when the announcement did finally come, the Bank held interest rates steady. There is no evidence to suggest that these appeals had any effect on the Bank’s decisions, and the federal government has placed almost the entire onus for dealing with inflation on the bank, not wanting to get involved in the issue. But is Hickey right that it’s wrong for politicians like Ford and Eby to make such an appeal?

Typically, a lot of importance is assigned to central bank independence and on maintaining inflation targets. These targets reassure people and businesses that they can make long-term financial plans. Central bank independence from political leadership aims to ensure stability by preventing political interference favoring short-term considerations. If the independence of the central bank is undermined, it could erode confidence, creating financial instability. Given this, Hickey may be right that public pleas from politicians are a bad idea.

On the other hand, so much of this argument hinges on how we understand the concepts “independence” and “risk.” First, let’s respond to Hickey’s analogy about the justice system. There are, in fact, ways in which you might indicate to an independent judge what you would like them to do and still have the court retain its independence. They are called courtrooms. Nothing about appealing to a person or making one’s preferences known inherently subverts independence. In fact, governments are often granted “intervener” status in court. If I ask a judge to not convict someone of a crime before they make their judgment, it doesn’t stop the judge from coming to their own decision. So long as I cannot override the judge or imply that I will fire them if they do not decide what I want, their independence need not be threatened. Independence does not imply that you cannot appeal to people as they make their choice, it just implies that at the end of the day, the choice is theirs to make. The same is true of the central bank and the case of these Premiers. There is no way for either Premier to exert any direct influence.

Second, Hickey’s point that we don’t want central banks to respond to politicians at all is inherently self-defeating. The two-percent target only started as part of an agreement in 1991, having shifted from an initial five-percent aim. The two-percent target as a long-term goal was only standardized after 1998. That target has been renewed several times, as recently as 2021 where the government gave additional leeway to consider employment as they consider how to meet their goal. Central banks, then, should have to respond to concerns of the public; they are not above reproach, and to suggest that a central bank should not have to respond to public concerns is undemocratic.

But while the bank can set a target, we can still have public discussions about how best to achieve that aim. Central banks are not above reproach, and it’s undemocratic to suggest that economic policy is not a public issue. Some economists, for example, have criticized the federal government for leaning so heavily on the central bank and interest rates to solve the problem. Indeed, this is the point that Eby’s letter was attempting to make. The bank’s actual mandate, for example, requires a target of 1-3% inflation over “the medium term.” There is no hard-and-fast rule for how fast the target must be met. Given this, it’s not even obvious that Eby and Ford were asking the Bank to act against its mandate. As there are different ways to measure inflation and different assumptions involved in making inflation projections, political debate seems necessary. It should not be the case that the central bank’s methodology or approach for fulfilling their mandate are beyond the public’s purview.

There are, for example, reasons to question the assumptions that underpinned inflation targets in the 1990s and whether this strategy should be used to fight inflation today. Unlike the 1990s, inflation is not the result of decades of rising wages. Instead, it is the product of global politics – such as the war in Ukraine – and, more significantly, supply chain issues caused by the COVID-19 pandemic. These new factors may mean we need to approach the present situation differently. Surely there is some way to adopt temporary changes to monetary policy without the sky falling. Some, for instance, have floated the idea of temporarily adopting a three-percent target. Economists, meanwhile, balk and continue to decry “political interference.”

Still, there are reasons for thinking that economic policy requires political oversight. Ultimately, comments like Hickey’s and others’ exemplify a technocratic mindset that undercuts democratic discussion by relying on the assumptions of experts that remain closed off from public scrutiny.

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The Hidden Ethics of Inflation

photograph of hands removing fiver from wallet

A danger of the modern obsession with data, facts, and figures is that it can disguise questions of ethics as questions of facts. Authors here at the Prindle Post, as well as elsewhere, have discussed the slipperiness of the slogan “follow the science.” It is easy to follow the science to belief in COVID-19 and the effectiveness of vaccination, but far harder to follow the science to what an acceptable level of risk is.

Our measures and metrics, the ways we describe the world we inhabit, involve more than taking a ruler to the structure of the universe. Science requires reflection and judgment. An awareness of the way our facts and figures are constituted opens up new space for ethical and political deliberation.

Inflation is a good case in point. The naturalization of inflation as a simple descriptive fact about the world, like bad weather, prevents a discussion of the causes of inflation and the choices behind those causes. The reporting of inflation as a single tell-all figure hinders awareness of whom it impacts most.

Inflation as simultaneously fact and decision

It is not uncommon to see inflation referenced as a cause or explanation for higher prices, in the sense that the reason prices are higher is because of inflation. For instance, in an op-ed for Newsweek, former congressman Newt Gingrich wrote, “Each day that inflation increases prices, the Democrats lose ground with ordinary Americans.” Similarly, CNBC declared, “inflation has raised the prices of many goods people want for a home revamp.” However, as economists define it, “inflation” is simply the word we use to describe any general increase in the prices of goods and services over some period of time in a country. “Inflation,” then, no more explains a price increase, than a “drunk-making power” explains the inebriating effect of alcohol. What matters is the why of inflation.

It is of course likely that businesses are partly raising prices for reasons consumers can appreciate – COVID-tangled supply lines, elevated raw materials costs, increasing production capacity or workforce, raising worker pay. However, as critics of current record profits have pointed out – such as Elizabeth Warren, economist Paul Krugman, and others – at least some inflation might be the result of large corporations leveraging pricing power due to market dominance or consolidation. Inflation is, if nothing else, a good excuse to raise prices.

But even if one grants the contentious point that corporations are actively doing this, we might still believe that it is perfectly fine for a corporation to increase profits when the consumer demand is there. These are for-profit entities after all. I am, however, not concerned with the ethics of this particular practice at present; rather, my point is that all those important debates about corporate responsibility, pricing power, and anti-trust are being obscured by our insistence on treating inflation like the weather – that is, as a force beyond human control.

Likewise, it is taken as natural that higher product costs should be passed onto consumers. Here again, there can be choice. Corporations could choose to cut executive bonuses or curtail stock buybacks (which are currently surging) rather than exclusively opt to increase prices. Yet further choices are in the background about tax levels for very high income earners and the permissibility of buybacks, which were largely illegal before 1982.

Even for the notionally bloodless topics of supply lines and logistics, choices were made by corporations about prioritizing efficiency over resilience, about offshoring and the use of cheap foreign labor, and about concentration of manufacturing in specific markets.

These choices may or may not be defensible, given one’s values and their economic framework, but it is imperative to recognize them as choices, occurring in a specific political and institutional context which facilitated them, and which could be otherwise.

Whosoever hath not, from him shall be taken away even that he hath

All sorts of significant choices and hidden values are buried within the way inflation is measured.

Inflation is typically measured by the Bureau of Labor Statistics’ Consumer Price Index (CPI). The index is, in their own words, “a measure of the average change over time in the prices paid by urban consumers for a representative basket of consumer goods and services.” (See their  FAQ.) The “basket” of goods includes gas, clothes, groceries, healthcare, and other typical purchases.

The Bureau of Labor Statistics collects an enormous amount of data, from across regions and consumer income levels. Economists quibble about the details – about how perfectly it captures overall inflation – but the more foundational concern from an ethical perspective is the move from an inflation measure, to how that measure impacts a particular consumer. While national policy decisions may take the details into account, national news will typically only report the overall Consumer Price Index. However, the very act of averaging across the diverse economic landscape of the United States entails the measure is insensitive to the specifics.

This happens in at least three ways. First, price increases are uneven across the bundle of goods. Inflation of 7% does not mean that gas rose 7% and frozen concentrated orange juice rose 7%. In fact, gas prices have increased several times that, spiking even higher after the invasion of Ukraine. Second, price increases are uneven across the country. Third, even if the bundle of goods is the same, it represents a different proportion of income for different people. (Stocks and other assets are not immune to negative effects from inflation, but inflation can potentially be waited out and money moved to less sensitive assets.)

The long and the short of this is that inflation hits different people differently. The people it hits hardest include those who must spend a large proportion of their income on consumable goods like food, those with less financial flexibility to modify their habits and assets, those with primarily cash saving, and those poorly positioned to negotiate inflation adjustments to their pay. The savvy reader may notice these are circling a central descriptor – those who are already poor.

In the U.K., activist Jack Monroe is developing a Vimes Boots Index that she believes more accurately reflects inflation specifically for people with less money. It is named after a character in a Terry Pratchet novel who comments that the poor cannot choose to buy boots that cost five times as much even if they last ten times as long because the poor never have the cash on hand to buy the nicer boots in the first place; a riff on the more general idea it is expensive to be poor.

Again, this is not to dispute that there is value in reporting the Consumer Price Index. It is instead to attend to the fact that how we discuss inflation and the metrics we use are not simply “following the science,” even the dismal science; they are, either more or less knowingly, decisions that express our values.

 

The author would like to acknowledge the valuable feedback of Rashid CJ Marcano-Rivera on economic matters.

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Under Discussion: Economic Concerns for a Green Future

photograph of power plant smoke blotting out sun

This piece is part of an Under Discussion series. To read more about this week’s topic and see more pieces from this series visit Under Discussion: Combating Climate Change.

Since taking his oath of office on January 20, 2021, President Biden has quickly taken steps toward fulfilling his promise to make combating climate change a key policy priority for his administration. This agenda marks a dramatic change from the actions of the Trump administration, which systematically rolled back over one hundred environmental protections and regulations. One of the first steps President Biden took was to begin the process of rejoining the Paris Climate Agreement, an international commitment to roll back carbon emissions. President Trump began the process of withdrawing the United States from the agreement in 2017. The central climate goals of the Biden administration are to decarbonize the U.S. power sector by the year 2035 and to make the U.S a 100% clean energy economy with zero net emissions by the year 2050. In the short term, he is pausing new drilling on public lands. President Biden intends for the United States to be a global climate leader during his administration, using climate demands as leverage in deliberations with foreign powers to encourage other countries to also put climate first.

The responses to President Biden’s climate agenda are not all worth considering. Anthropogenic climate change deniers continue to exist and probably always will. Some deniers are more inclined to believe climate conspiracies than they are to trust the consensus view among experts in climate science. Some people, politicians in particular, continue to deny that anthropogenic climate change is happening because they receive donations from the fossil fuel industry or because they know that their voting constituency values fossil fuels over climate. These segments of society can be loud, but the arguments that they are offering aren’t compelling.

Dissenting voices that pose more of a challenge come from those who are afraid of losing their jobs or worry that the economy will become weak if we abandon fossil fuels. Energy is a significant part of our economy, and the fossil fuel industry is the biggest part of that sector, comprising roughly 63%. There is no doubt that pursuing a green energy future will be a substantial change that will displace many workers in the U.S. and abroad. Those that think that these economic considerations should outweigh other consequences seem to be operating according to a principle that says something like: “If a policy leads to loss of employment in a particular field on a large scale, that policy should be rejected.” Do we have good reason to believe that such a principle is true? Several arguments speak against it.

First, if the concern is that the economy will collapse under the pressure of abandoning the fossil fuel industry or that large segments of the population will be permanently out of work, we can look back to other major shifts in our economic system which demonstrate that this is not so. For instance, before the emergence of the modern fossil fuel industry, we used products extracted from the carcasses of whales. Whale oil provided flammable material for lanterns and candles. It was used to make soap, margarine, and to grease mechanical equipment. Before the discovery of plastics, we used baleen (essentially whale bones) to construct the ribbing of corsets and to make children’s toys. We used the bodies of whales to make and do so many things that for some time, whaling was the fifth largest segment of the economy. When we shifted from whale products to fossil fuels and plastics, some jobs disappeared but other jobs were created.

Despite the usefulness of whale products, there were plenty of good reasons to put an end to the whaling industry. Not least among these reasons is that the practice drove whale populations to the brink of extinction. Countless sentient beings were killed and those who were not were frequently seriously wounded during attempts on their lives. The whaling industry was also very dangerous for the humans who participated in it. Often, entire vessels would sink. On other occasions, whalers would be seriously hurt or even killed in battles with whales fighting for their lives. The work involved for the people who actually put themselves in harm’s way was tremendously exploitative; it was not the typical sailor who would get rich from the endeavor. Instead, it was the captain of the ship or the financier.

Despite all of this death, destruction, and exploitation, the whaling industry persisted for centuries. Arguments against it were not taken seriously. How would society function without whaling? What would people who earned their livelihoods from whaling do if the industry suddenly came to an end?

Though some whaling still occurs, the presence of market alternatives brought an end to the whaling industry as a pervasive practice. In the mid-1800’s, we started extracting oil from reservoirs in the ground. In the early 1900s, we developed plastics. In the end, moral arguments didn’t kill the whaling industry, market alternatives did. Those who did the perilous work of killing whales found employment in different sectors.

The threat posed by anthropogenic climate change is many degrees of magnitude greater than the threat posed by whaling. It isn’t just human lives or the lives of whales that are at risk; climate change presents risks for all life on earth, for ourselves, our children and our grandchildren. Those that contribute to the problem least will be the hardest hit. We can hope that these moral arguments won’t be similarly ignored.

Happily, market alternatives to fossil fuels have existed for quite some time, but the United States has been reluctant to pursue them aggressively. If the concern is loss of jobs, the green energy sector has the potential to replace those that are lost. One of President Biden’s goals for his first term is to make changes that will result in 10 million clean energy jobs that pay high wages and offer benefits and worker protections.

What’s more, we don’t apply the principle, “If a policy leads to loss of employment in a particular field on a large scale, that policy should be rejected” to all possible jobs, only those that preserve our existing systems of power. When a Wal-Mart moves in across the street and puts a mom-and-pop shop out of business, politicians rarely raise concerns about the jobs lost. In those cases, “that’s just the way the market works.” In the case of fossil fuels, the concern doesn’t really seem to be about loss of jobs, it seems to be fear that the people who currently have power will lose it. People with money and power rarely want to give up the source of those things, regardless of what might be at stake.

President Biden’s climate goals are ambitious and it’s far from certain that we can achieve them, especially given the fact that many of these proposals will require collaboration between political parties. That seems close to impossible to achieve in this political climate. It is unfortunate that there is such political gridlock on this issue. If there weren’t fortunes to be defended, one would think that everyone could come together on this. A green energy future would be indisputably better for the lives and health of everyone and for the natural beauty of this planet.

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Is Canceling All Student Debt Fair? Yes. Here’s Why.

photograph of college graduation cap laying on top of pile of cash

In a recent interview, president-elect Joe Biden explicitly stated he intends to tackle student debt by proposing some relief to the borrowers. This statement gave progressives renewed hope of achieving one of their most dear and more radical objectives: canceling all student debt. But this possibility has reignited debate with arguments both for and against it.

“It’s Regressive”

Some argue that a reason against canceling student debt is that it’s regressive — meaning, it would disproportionately help the rich. Critics allege that “students from rich families tend to borrow more than students from poor families, since wealthy students disproportionately choose expensive private colleges where even rich families must resort to borrowing.” But this argument is not as clear-cut as it sounds, for three reasons.

It’s Misrepresentative

To start, as others have argued, “information on outstanding debt is based on where borrowers are after they have financed their college education, not where they started out.” In other words, the amount of debt that one takes counts as part of one’s own financial reserves. So of course if one takes on higher loans, then if this figures as part of one’s own wealth, then they will appear as richer. Think about home ownership: when one buys a home, the home counts as part of one’s own financial assets. If the home is worth 1 million dollars, then it will appear that the owner is worth 1 million dollars. This is the case even if the owner has a mortgage (which is debt). So, technically, the owner still does not own the house (if they are paying the mortgage) but the house nevertheless counts as part of their wealth. From this is clear that the regressive argument does not hold up, and is possibly misrepresentative.

It Lacks Context

But even if the regressive argument was on the right track (it is not, but let’s assume that it is), it seems to lack context as these arguments tend to discount the meaning that money (and consequently, debt) has depending on which economic community one belongs to. In this sense, canceling all student debt will undoubtedly benefit low-income communities. Saying that it will benefit the rich more is not a good reason for setting aside the policy, and confuses the current situation. Which leads me to the last point:

It’s Misleading 

There is something to say about the term ‘regressive’. To say that a policy is regressive usually indicates that not only it will give an advantage to people who are well-off but that it will be also punitive towards people that are not well-off. Taxing cigarettes for example is regressive because it primarily targets, and disadvantages, low-income communities which are the ones, as it has been pointed out, that tend to smoke the most. But canceling student loans would not hurt low-income communities, if anything, it will benefit them. So saying that the initiative is regressive is misleading.

“It Won’t Help the Economy Recover”

One reason to erase all student debt, as Sen. Elizabeth Warren has pointed out, is that it will stimulate the economy. However, some have suggested that canceling student debt will not necessarily yield that desired result. The reason why is that “forgiving student loans spreads stimulus out over time instead of pushing it all out at once because it eliminates a monthly payment. A borrower who owes $200 a month would get the same amount of relief this month, in the middle of an economic downturn, as they would when the crisis is over.” I take it that the rationale behind this claim is that it would be better to receive a substantive stimulus once, rather than receiving a smaller debt forgiveness spread over time. While the former will make a difference in people’s lives in terms of whether they spend it, a small debt forgiveness will not necessarily do that. If we are concerned about long-term solutions this argument seems right: better more money now then less money over time. But it is not clear that student debt forgiveness will yield less money. For example, a stimulus, let’s say $1200, received once will be outweighed by a smaller debt forgiveness that spreads out over years as it will eventually amount to more money.    

Personal Responsibility vs Structural Causes

Many of these claims are motivated by a misunderstanding as arguments against canceling student debt seem to hinge on the sharp contrast drawn between personal responsibility and structural causes. As others have rightly pointed out, those in favor of canceling student debt often attribute the crisis to “societal factors”, while those who side against erasing student debt often cite reasons that pertain to personal responsibility. The latter argument tends to emphasize that if one chooses to go to college and to take a loan, then it is one’s responsibility to pay off such a loan. Yet, this claim does not take into consideration that even granting that one does choose to go to college, societal factors – which go beyond individuals’ control – have dangerously evolved in ways that have shaped the student debt crisis. Among these factors are disproportionate tuition fees that do not reflect inflation, instead rising at twice the rate. This fact alone counts against the personal responsibility argument, as individuals themselves can hardly bend the inflation rate to their needs, but college cost is not the only thing that got more expensive. Healthcare premiums as well as housing costs rose, and that adds to the societal causes that have contributed to making student debt a crisis.

Finally, it’s also worth reflecting on how the opportunities that college education provides have evolved. In a society where more and more jobs require college education for jobs that did not before, it’s fair to question how “free” the choice to attend college is given that the lack of a degree rules out so many more opportunities than it did in the past.

“Don’t Get Loans You Cannot Repay”

But even if one is somewhat obliged to go to college in order to have the degree needed to do the job, another argument goes, then it is one’s own personal responsibility not to take loans one knows it will struggle to repay. Yet this line of reasoning, much like the one on personal responsibility above, discounts the role that predatory lending practices have played in shaping current circumstances. Those who take on student loans do not have access to the same escapes that those who are in debt usually have. One example is that, contrary to debt incurred due to medical bills for instance, the rules for easing student debt are considerably more restrictive. For example, in order to declare bankruptcy to ease student debt, borrowers are required to prove that repaying the debt poses an “undue struggle” on them and their dependents. If that was not bad enough, some loan providers exert predatory schemes that put students in particularly precarious financial positions. In 2017, for example, the Consumer Financial Protection Bureau accused loan provider Navient of giving out subprime loans to borrowers that in some instances the company predicted to have “as high as 92%” chance of defaulting. One cannot blame the students for not being vigilant enough to fall into the traps of predatory lending as this would be akin to victim-blaming. The students, even if not vigilant, do not commit any unlawful activity in taking on debts that they cannot sustain. Predatory lenders instead do. Thus, the attention should not be on the borrowed, but rather on the company themselves that should be held accountable for their irresponsible conduct.

Why Now?

But even admitting that student debt can and should be canceled, why should it be our priority now? As Carson Lappetito, president of Sunwest Bank, has claimed, our efforts should be targeting “the restaurants, hotels, front-line workers that are being most heavily impacted” by the pandemic. But canceling student debt of course does not imply that one should not help those communities that have been severely disadvantaged by pandemic; it simply means that, if anything, one should focus on both: impacted hotels, restaurants, front-line workers, and those whose lives continue to be upended by debt. The implication should be that by giving to one we are not taking from others.

One reason for easing student debt now is that there is a president-elect who is open to the possibility, and could do so simply through executive order. Even though some have pointed out that easing student debt through an executive order might not be ideal policy because it would “would invite a deluge of lawsuits,” the Legal Services Center of Harvard Law School carefully examined the issue and defended its legality, concluding that the “broad or categorical debt cancellation would be a lawful and permissible exercise of the Secretary’s authority under existing law.”

Canceling all student debt is an idea that is not new, nor it is the first time being debated. There are many arguments that speak in favor of it, and those against canceling all student debt are not, on reflection, as solid as they may seem. From a moral standpoint, as Roxane Gay as argued, “[a]s a public, we owe a debt to one another — the debt of belonging to a community. It’s time that debt was paid.”

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Should At-Home Workers Be Taxed?

overhead photograph of hands on laptop on dinner table surrounded by food and beverages

Deutsche Bank recently released a report titled “What We Must Do to Rebuild” which contains a number of policy proposals. One of the more noteworthy suggestions concerns a 5% daily tax on employees who choose to work from home. Since “WFH offers direct financial savings on expenses such as travel, lunch, clothes, and cleaning,” it seems that “remote workers are contributing less to the infrastructure of the society whilst still receiving its benefits.” As such, “Those who are lucky enough to be in a position to ‘disconnect’ themselves from the face-to-face economy owe it to [those who can’t].”

But there are a number of reasons to be skeptical of this argument. Some of these reasons have to do with how we define “disconnect”; others have to do with our conception of fairness and who owes what to whom.

First, the study seems to assume that incomes have stayed the same, but nearly half of all American households saw a reduction in income due to COVID-19. More importantly, the study assumes that the money not spent on commutes, take-out lunches, and dry cleaning are not being pumped back into the economy in other ways. In general, most Americans spend all or more than they earn. And spending trends during COVID-19 might be down in some areas, but they are up in others. Amazon profits soared during the pandemic. Americans are pumping more money into home improvement during the pandemic. And Americans who aren’t spending are paying down debt, which still counts as cash going into the economy. In fact, Americans (with means) are spending more in a lot of areas including, pets, education, home improvement, food and dining, shopping, gifts and charitable donations.

Now one issue might be with respect to where at-home workers are spending their money. Amazon, Home Depot, and paying credit card debt all push money out of the local economy. But the areas hit hardest are home to large mega-corporations that push money out of the local economy too. If the moral solution to preserving a local economy is to tax those who benefit from the economy but are sending their earnings out, we should start with broad federal policies aimed at the biggest fish. Amazon would be a good place to start.

16.5% of American households earn 50,000-75,000 a year. There are approximately 128,000,000 households in the US. Let’s assume 40% of those are work-from-home with an average of 50,000/year. A 5% tax increase would generate about $125 billion. But look at how the corporate tax rate has fallen since the 50’s when it hovered around 50%. It’s now down to 21%. And in 2018 60 Fortune 500 companies paid zero on income taxes at all. Raising the corporate tax rate and ensuring that top companies actually pay it would generate more than what you would likely get from squeezing it out of the average American stay-at-home worker.

The one area in which at-home workers might be pulling money out of the economy is when they save their money instead of spending it. But it seems that the tax penalty here should not be on people who suddenly have more money to save, it should be on anyone who chooses to save their money rather than spend it. Again, corporations are also hoarding cash. In 2019 Apple and Alpha had approximately $100 billion in cash each. At the beginning of the pandemic in March of 2020, The Fortune 500 companies had a total of $325 billion cash on hand just sitting there.

This is not a soak the rich argument; I have taken no position on whether we should tax anyone. This is a soak them first if we’re going to soak anyone argument. The same reasons used to justify taxing at-home workers apply just as well (if not better) to taxing larger corporations.

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Utilitarian Arguments During COVID: A Symptom, Not the Answer

photograph of crowded grocery store with customers wearing masks

As the consequences of the spread of COVID-19 and of the economic recession that it has caused become slightly more clear to us, President Trump has emphasized his belief that American citizens should think of themselves as warriors as he believes that the economy should re-open, noting, “I’m not saying that anything is perfect, and yes, will some people be affected, yes, will some people be affected badly-yes but we have to get our country open and we have to get it open soon.” The upshot of this thinking is apparently that some may need to sacrifice their lives for the sake of economic recovery. Indeed, this has led many to begin analyzing this dilemma as a utilitarian one. Peter Singer has posed the issue this way, as have others urging for a re-opening. But is this really a helpful way to understand the problem being faced?

After all, even if restrictions were lifted today polls have shown that most Americans do not believe it is safe. If people are reluctant to return to work and reluctant to engage in economic activity, the economy will suffer anyways in addition to many more people dying. The choice is not between economic suffering or more death; that will happen no matter what. The choice is between how much economic suffering we can hope to mitigate and how much death we can hope to mitigate. We then have to face the “big” philosophical questions like how much a human life is worth? But consider a different moral dilemma: If an airline’s negligent policies led to a plane crash where there was no food and no hope of rescue, survivors may be faced with the prospect of eating those who died in the crash in order to remain alive. What should the public take away from an accident like this? Should it be investigating what policies need to be in place to prevent future crashes and to ensure that if one does occur that there are rations for survivors, or should the upshot of such an ethical dilemma be that there is a utilitarian argument for eating Steve? How should we define the problem?

According to American philosopher John Dewey, one of the defining characteristics of the scientific revolution is when we stopped taking observed phenomena as the final or conclusive by itself, and started to see them as problems to be experimentally investigated in terms of the means required to produce them and the effects that they produce. If we perceive a stick that bends as it is placed in water, we do not claim to know that the stick bends in water; the perception creates a problem for investigation in terms of how optics allows for such a perception. It is this intelligent investigation into the relationship between means and ends that allow us to control and regulate our experiences. Applying this lesson to ethics, Dewey notes in Experience and Nature that when we take what we value to be a problem, “it implies intelligent inquiry into the conditions and consequences of a value-object.” What does this tell us about how to define moral problems?

The present situation may lead us to believe that we are facing an ethical problem with two conflicting aims: do we re-open the economy in order to help reduce long-term suffering or do we keep lock-down regulations in place to prevent more deaths? The question has been posed by even the likes of Anthony Fauci who asked this week, “How many deaths and how much suffering are you willing to accept to get back to what you want to be some form of normality sooner rather than later?” As noted, either way there will be suffering and pain and we can try to figure out ways to mitigate that suffering, but perhaps the lesson to be learned is not how to choose between these conflicting aims, but how to prevent those aims from conflicting in the first place. The dilemma being faced between economic suffering on the one hand, and death on the other is not the definition of the ethical problem, but a symptom of it. When we examine the conditions that lead to this conflict and the consequences that follow from it, the moral conclusion to reach is determining what steps are necessary to prevent a conflict between keeping people alive and preventing economic disaster in crises like these.

It is no secret that one of the factors which exacerbates the dilemma between economic health and public health is the rise in economic desperation. Unemployment rates are hitting levels associated with the Great Depression. Food banks are being overwhelmed. 20% of Americans were unable to pay rent for May. It is no wonder that a growing number is desperate to return to work and this urgent need only makes the problem worse. But even before this year roughly 40 million people depended on food banks. Millions lived paycheck-to-paycheck and 30% of adults had no emergency savings. There are plenty of ways of measuring a successful economy, but had there been greater efforts to secure the economic stability of average citizens, the crisis they are facing would not have been as bad.

Government policies to help citizens facing an economic crunch is one way to help mitigate the problem. However, for most Americans a single $1200 check is insufficient. In Canada, the government response has been more comprehensive: the Canada Emergency Response Benefit (CERB) is providing $500 a week for 16 weeks. The government is also subsidizing wages to ensure that employees can retain their jobs. Efforts like this are a help in removing some of the urgency of re-opening compared to the situation in the United States, but such policies cannot be maintained forever. One of the lessons that perhaps should be learned is to focus less on isolated figures like GDP growth or unemployment rates, and more on ensuring individual economic security against threats to economic activity (this includes a potential second-wave, a future virus, armed conflict, or even climate change).

On the public health side of the dilemma there are also lessons that could be learned. In January, most public figures in North America were still downplaying the threat of the coronavirus. As a result, travel continued unabated, medical equipment was not stockpiled, and the public was not given a heads up about what was coming. As Fauci has admitted, the slow response did cost lives. Had governments and other institutions responded faster, the crisis would not be what it is now. The hard-moral work moving forward is going to be figuring out the conditions that were in place that allowed the problem to become worse. For example, the Trump Administration has no bio-ethics committee (something presidents have had going back to the 1970s). Such a board can help policy makers understand the potentially relevant ethical issues relating to preparation for a public health crisis. Improving methods of handling similar health crises may help prevent them from becoming serious threats to the economy.

The moral imperative for the public is not to go out and consume, but to make sure that that policy makers have plans in place to prevent the next crisis from becoming as bad. Much of this does not help the current dilemma, but that is sort of the point. Allowing the problem to get this bad means that options become limited, time becomes limited, and it makes the public more likely to panic and make rash decisions. Looking to utilitarian ethics in this situation is like relying on a rope made of bedsheets to escape a 10-story apartment fire; it may be a valid option (or not), but ultimately the wise thing is to make sure that future apartments have an adequate sprinkler system so that we do not need bedsheet solutions.

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A National Cash Crisis in India

Two weeks ago, the Indian Prime Minister, Narendra Modi, came on the evening news and made an announcement that would send shocks through the country. In the unscheduled televised address, Modi informed the public that in four hours, 500 and 1,000 rupee notes would no longer be legal tender. Two details of this startling law: first, people may deposit or change their old  ₹500 and ₹1,000 notes in banks until December 30th, the day that new ₹500 and ₹2,000 rupee notes will be issued. Second, until then, people may exchange a small sum of old cash into legal tender of smaller denominations at banks—three days ago this amount was reduced from ₹4,500 to ₹2,000.  

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