Tech Won't Save Us - Can Higher Interest Rates Tame Big Tech And Inflation? w/ Grace Blakeley

Episode Date: March 17, 2022

Paris Marx is joined by Grace Blakeley to discuss how low interest rates and quantitative easing fueled the tech economy’s post-recession growth, why raising them won’t fix the problems that’s created, and whether higher interest rates are the solution to rising inflation.Grace Blakeley is a staff writer at Tribune Magazine and host of A World to Win. She’s also the author of Stolen: How to Save the World from Financialisation and The Corona Crash: How the Pandemic Will Change Capitalism. Follow Grace on Twitter at @graceblakeley.Tech Won’t Save Us offers a critical perspective on tech, its worldview, and wider society with the goal of inspiring people to demand better tech and a better world. Follow the podcast (@techwontsaveus) and host Paris Marx (@parismarx) on Twitter, and support the show on Patreon.Find out more about Harbinger Media Network at harbingermedianetwork.com.Also mentioned in this episode:Grace wrote about how interest rate hikes are used against workers, what we should learn from the Gamestop short squeeze, and how the pandemic has produced closer links between the state and major corporations.Benjamin Braun and Adrienne Buller explained the concept of asset manager capitalism.In the face of rising inflation, NFT values are down 48% since November.High energy prices tend to drive inflation, and Russia and Ukraine are major wheat exporters.In the UK, wages are falling at the fastest rate since 2014. In the US, wages are falling when accounting for inflation, after decades of wage stagnation.Support the show

When you have market dominance, you don't need to demonstrate a way in which you can sustainably and fairly, well, like in capitalist terms, generate profit. You can just squeeze consumers, squeeze workers and extract economic rent. Hello and welcome to Tech Won't Save Us. I'm your host, Paris Marks, and this week my guest is Grace Blakely. Grace is a staff writer at Tribune Magazine and the host of a World to Win podcast. She's also the author of a number of books, including Stolen, How to Save the World from Financialization, and The Corona Crash, How the Pandemic Will Change Capitalism. In a recent article for Tribune Magazine, Grace wrote about the inflation crisis of the 1970s, how interest rates were used

to respond to that, and what that meant for workers at the time. In telling that tale, she illustrates how the story that we're often told about inflation in the 1970s is not correct, and that by replicating that today, we would effectively be attacking workers and ensuring that they bear the brunt of this inflation instead of capital having to pay that cost. Now, I think that this is an important conversation for a number of reasons. First of all, obviously, this is a topic that is incredibly relevant for everything that we're going through as a global society right now, as we discuss what the response to this growing inflation should be. But at the same time, when we think about

interest rates and quantitative easing and monetary policy, that has also had an impact on the tech industry and making the existing tech industry what it is today through encouraging the degree of investment that has happened in particular startups and companies, by encouraging a particular model of development in the tech sector, and even by encouraging in some ways, the creation of these really speculative tech products, like cryptocurrencies and NFTs and things like that. And we get into all of those topics in this conversation. And so I think that you're really going to like it. And I think that hopefully you're going to learn a lot from it. And I would just say that before we get into it, the first about 10 minutes of the conversation is about monetary policy more

generally and what came out of the 2008 crisis, you know, what the response to that was in terms of monetary policy. And that is important because it sets up the conversation that we have about what monetary policy has meant for the tech industry and also what is happening today in regards to inflation and interest rates and things like that. And so if you feel like in the first 10 minutes you're struggling with some of the concepts, I would say don't worry about that and push through it because then we'll get to the stuff that's really related to tech and really related to what's happening today that you'll be able to connect to more easily if you're having a bit more difficulty with those earlier concepts. But even with that said, I think you'll be fine. And I

think that you're really going to like this interview because Grace is able to explain these things so well and has such a great grasp of these topics, including what it means for the tech industry. And so I really hope that you like this conversation. Tech Won't Save Us is part of the Harbinger Media Network, a group of left-wing podcasts that are made in Canada. And you can find out more about that at harbingermedianetwork.com. If you like the show, make sure to leave a five-star review on Apple Podcasts or Spotify. And you can also share it on social media or with any friends or colleagues who you think would learn from it. And every episode of Tech Won't Save Us is free for everybody because listeners like you support the work that goes into making

it every single week. So if you like this conversation and you like the show, consider joining patrons like Melody from Denver, Matt from Valencia in Spain, Ben Brown from Austin, Texas, Josh from Los Angeles, Andy Smart from England, Bartek from Poland, Jeremy from Marseille, and Benjamin Baller from Sweden by going to patreon.com slash techwontsaveus and becoming a supporter. Thanks so much and enjoy this week's conversation. Grace, welcome back to Tech Won't Save Us. Thanks for having me.

It's great to be here. It's great to chat. Great to connect again. Obviously, there is this discussion that is ongoing about interest rates and whether it's a good time to raise interest rates. And I think that that has a particular interest among people in tech, because there is this view that low interest rates are part of what has fueled some of the growth and kind of exuberance in the tech economy over the past decade. And, you know, I'm sure even longer. And so I wanted to get into that with you. But I want to start by getting that foundational

understanding of what's going on and what interest rates have done. So, you. But I want to start by getting that foundational understanding of what's going on and what interest rates have done. So you know, I want to start by going back to 2008, when we had this massive financial crisis, and many Western governments slashed interest rates to close to zero. And they've stayed really low since then. So in Canada, they've stayed below 2%. In the US, they've gone as high as 2.5, and then come down again. And in the UK, I believe it stayed below 1%. So, you know, really low rates over a really extended period of time. So why did governments make that decision back in 2008, 2009 to slash those rates? And what was cutting interest rates supposed to achieve? Yeah, so I mean, we can just start, I guess, by some basic stuff around monetary policy and how it's supposed to affect the economy.

So central banks around the world set an interest rate, which is the kind of central bank base rate. And they do that in a variety of different ways. But generally, it involves intervening in the markets for government debt. So often, it means kind of buying and selling short term government debt to influence the rate of interest on that debt. And so, you know, the rate of interest generally is going to be about the supply and demand for, you know, in general for money. But in this particular case for an asset. So, you know, the interest rate on government borrowing is a reflection of the supply and demand for that asset. So if there is a lot kind of going on in the economy, lots of people want to invest in government debt because they can't find high returns elsewhere,

the demand for that will be higher, the yields for that will be lower. And if governments issue lots of debt, so there's lots of supply of that in the system, then there'll be less demand for it for the new issuances because there's already a lot in the system. And that means that the interest rates on that will be higher because the government will need to convince investors to hold its debt by increasing interest rates. So the central bank affects the economy by trying to influence these rates of interest on government debt by intervening in the money markets. Now, what that is supposed to do is affect the cost of credit and the cost of debt throughout the economy as a whole. So firstly, a lot of borrowing is tied to this base rate of interest on government debt. For example, like your mortgage often is tied to the bank base rate. So increasing interest rates makes

your mortgage more expensive. But also if interest rates are higher, then commercial banks, retail banks are going to have to charge higher interest rates on the loans that they make to businesses and consumers, because their margins, their profits, the difference between the rate which they borrow and the rate which they lend. So raising the interest rate affects basically the cost of borrowing across the whole economy. And you can obviously see this because government bond interest rates affect other kinds of interest rates and interest rates are the cost of borrowing, you know, whether that's your credit card interest rate, mortgage interest rate, whatever. Now, the main route through which this is supposed to affect growth is through the cost

of corporate borrowing. So when it costs businesses more money to borrow, they're likely to invest less. When they invest less, they're creating fewer jobs, generally kind of creating less demand in the economy. And that's supposed to kind of slow growth. fewer jobs, generally kind of creating less demand in the economy. And that's supposed to kind of slow growth. Now, the big kind of framework for this is about the link between the rate of interest, employment and inflation. So, you know, back in the kind of post-war period, there was supposed to be this very reliable relationship between inflation and employment. And the interest rate was supposed to be the tool that you would use to kind of sync up those two things. So if employment was too low, you would cut interest rates, cut the cost of borrowing, encourage businesses to invest more, create more jobs.

But if inflation was too high, so if there was kind of too much demand in the economy, basically kind of forcing prices up, you would raise interest rates, increase the cost of borrowing, discourage investment, potentially discourage some employment and cool the economy down. That relationship became a little bit more complicated during the 1970s. And we can talk about that moment and why it's important for where we ended up today. But you know, today, central banks still broadly use that framework, whether or not they're actually thinking about employment and inflation, or they're just thinking about inflation. It's generally the idea is that this interest rate and the operations that central banks use to control the interest rate is supposed to affect inflation by kind of helping the economy heat up or cool down through this

lever of increasing borrowing. So after the financial crisis, obviously, the economy is kind of in tatters, Demand is very low. And there is a lot of outstanding debt as well, particularly for households, but also to an extent for corporations. So there's this big debt overhang, basically, of people who've taken out loads and loads of money, often as a kind of bet against the ongoing increase in the value of their home. And they may have taken out mortgages or released the equity from their home. And they've got this big debt overhang. At the same time as you've got rising unemployment and falling demand in the economy. So maybe these people are also having lower wages or losing their

jobs or whatever. And that as a result, going to decrease their spending. And when they decrease their spending, then that has a knock on effect on the rest of the economy. So cutting interest rates at that point was both supposed to kind of relieve the burden on consumers of repaying all this debt and allow them to kind of spend more in the economy. And also, obviously, it was supposed to work through this traditional channel of encouraging businesses to undertake more investment. The problem after 2008 was that there was so much debt and so little enthusiasm for investment, that even at effectively zero, and in some cases, negative real rates of interest, so negative interest rates, when you account for inflation, there was still kind of not enough demand in the economy. And still people weren't

spending, they were still kind of really focused on repaying their debts. And this became a really big problem for economists, they were like, what can we do to stimulate the economy when we've already got interest rates at zero and people still don't want to borrow more money because they've already got this big debt overhang or because they can't see any opportunities for investment in the future. And that was when they kind of embarked on this experiment in quantitative easing, which we can talk about a little bit later and I'll explain what it is. But yeah, that's the kind of general framework for thinking about interest rates is that link between the rate of interest, the kind of cost of government borrowing, and employment and inflation. I really appreciate those basics to get that kind of basic understanding of what's going on there.

And so I wonder, the rates were cut around 2008, 2009, you know, through that period, reached this really low level. And then they've fluctuated a bit since then, but they've stayed quite low over the course of more than a decade now. What is the effect of having interest rates so low for such a long period of time? And why was it felt that they needed to stay that low instead of to actually start raising them back up again, as I guess you would expect would happen. Yeah, so the cause and effect of low interest rates. And in talking about this, I'm probably going to have to talk a little bit as well about quantitative easing, which is this other part of monetary policy. But really, I mean, the the cause of kind of ongoing low interest rates was just

this problem that economic growth remained very subdued in most economies in the wake of the financial crisis, less so in the US, actually, but still significantly in Europe, obviously, at least part of that was down to the Eurozone crisis, and in the UK, at least partly down to austerity. So you know, if you're thinking about raising interest rates, you're generally doing so when growth is higher and inflation is higher. But in the Eurozone, at one point, there was this question around deflation, because, you know, growth was so low, demand was so low. There was a question mark around whether or not prices would actually start falling. And that's a really big problem because when prices start falling, it can create

a cycle of falling demand because people think, oh, prices will be lower tomorrow, so I'll put off my spending until tomorrow. That creates a significant problem. It's just as much, in fact, more of a problem really than low levels of inflation. Was that also the period where interest rates in some Eurozone countries went negative? Yeah. And this was, again, trying to tackle this problem of deflation. So it was really a question of low growth and stagnation that meant that governments couldn't raise interest rates because if you were going to raise interest rates, it would be to try and cool the economy down. But they really wanted to carry on heating the economy up. So with interest rates at this,

you know, it's what's called the zero lower bound, it's very hard to push interest rates to below zero, because effectively, that involves charging people for cash. And that's only really something that you can do if you have an electronic currency, which is what some governments in Europe tried to move towards in an attempt to move towards the system of negative interest rates. So after the financial crisis, interest rates at the zero lower bound, potentially even lower than zero, government started thinking, right, well, how could we stimulate the economy, there were two real options here. One was a kind of the classic Keynesian approach, which would just be to government to spend more money. So the government to invest itself, if businesses aren't investing,

then the government says, right, we're going to do some investment that will kind of crowd in investment from the private sector, we'll create jobs, we will invest in infrastructure, which will support long term economic growth, maybe do decarbonisation, those sorts of things. But as we know, that didn't happen for a lot of different political reasons. We had like the stimulus programs after the financial crisis in the few years after that, but then they kind of tapered off and it was kind of like private sector, okay, pick up the slack. And that didn't really happen. Yeah, exactly.

So in the UK and the US, you did have that immediate stimulus program during the kind of depths of the recession. But as we came out, that really tapered off. And, you know, you had a move to austerity in the UK and Europe, and kind of, you know, de facto austerity across most sections of the state in the US, with some significant exceptions, notably the military. And yeah, that kind of choked off economic growth and made growth lower than it otherwise might have been and kind of constrained wages, constrained employment, actually less so employment, because you had the growth of a lot of insecure employment in that

period. And so it wasn't that there was like a kind of massive unemployed people, it was more like there was just a massive growth of precarious, low paid work that maybe you weren't getting enough hours to kind of get by. So generally, not particularly positive news coming out of the kind of reporting on the macro economy in the wake of the financial crisis. And central bankers drawing on the experience of Japan, after its property bubble burst in the 1990s, decided that rather than using fiscal policy, so rather than using government spending, which was constrained because of austerity, that they would rely on monetary policy. Again, interest rates are very low. So how do they do that? They used a new tool, which was that I mentioned that central banks try to influence

the base rate by buying and selling short term government debt. And that's supposed to, yeah, as I said, have an impact on all these other interest rates throughout the rest of the economy. And the idea behind that, in theory, is that you're aligning this short-term interest rate, which is volatile, with a long-term natural rate of interest that equilibrates investment saving, employment, and inflation, and gives you kind of stable long-term growth. Now, the idea of the natural rate of interest has always been somewhat controversial because it's difficult to really prove that that exists empirically. And with quantitative easing, central banks effectively abandoned the idea that they were trying to align this short term rate with a kind of natural

pre existing long term rate, and just said, right, it's up to us to decide the cost of borrowing throughout the economy as a whole, we're not even going to pretend that this is something that's determined outside of our control. It's basically saying we as the state are going to determine what it costs people to borrow. And actually, we're going to kind of try and influence asset prices in general throughout the whole economy. And what they did was they started to create new money digitally, and they use that new money to purchase long term government bonds. Now, these are generally assets that investors like, you know, pension funds, banks, whatever, will hold and keep in their portfolios for a long time. There's often kind of regulatory reasons

they have to do that. It's about kind of balancing their portfolio, making sure that they have this very safe asset that gives kind of standard returns over a long time period. So when the central bank decided to create money to purchase those government bonds, these investors then had a lot of cash left over. Those bonds were exchanged for cash. And they were thinking, right, okay, so we have to invest this money somewhere, what do we do? And a lot of that money was reinvested in other assets. So there was this problem of a kind of reaching for yield. Investors were holding onto a lot of money and they needed to find profitable outlets for investment in a subdued macroeconomic context. So when there wasn't much growth,

there wasn't much kind of investment going on. So it was difficult to find things to invest in. So what did they do? They plowed that money into things like equities, and particularly in the tech sector, and bonds and real estate, and you know, often kind of government bonds, and particularly in the global south. And therefore, the prices of those assets increased substantially. So let's talk, you know, tech equities, for example, a lot of this money went into what was then the kind of next big exciting thing in the global economy, which was tech stocks. You've got this big pool of money, it's looking for returns, you know, investors are all kind of psyching themselves up about the opportunities in the digital economy. So where does that money go? It goes into companies like Google, Facebook, whatever, even Amazon, even if those companies aren't at that point profitable. Because again, you know,

there was this expectation that those companies would be profitable at some point in the future. And if you get in early, then you're going to, you know, generate really high returns for yourself, even if you're not actually getting paid dividends at this point in time. Now, that's obviously less of a problem when you've got a lot of cash, and you don't know what to do with it. You're really just kind of thinking, where can I put it? So lots of money went into, at that point, relatively unprofitable tech companies. And the tech companies knew this was what was going on. So there were several big IPOs in the wake of the financial crisis. I think that was when Facebook did its IPO. Google, Facebook, Amazon all did their IPOs either after the tech bubble burst in the 2000s or after the financial crisis.

And it was during these moments of economic crisis when there was lots of money circling around the global economy and it needed some profitable, or not even profitable, it just needed somewhere to go basically. And that was really what kind of facilitated the growth of big tech in the wake of the financial crisis. And actually, even going back to the tech bubble itself, this same situation had taken place after the financial crisis that took place in the late 80s and early 90s, which was that central banks didn't quite do quantitative easing, but they took similar sort of steps to make borrowing very cheap and to kind of boost asset prices and create liquidity in the global economy. So there was lots of money going around then. A lot of that money then went into the tech stocks, you know, a lot of which kind of didn't end up surviving and collapsed in the tech bubble. And that process has really just carried on ever since then. You know, you have lots of money. It doesn't know where to go. It all goes into one particular asset. The value of that asset skyrockets before crashing. So tech bubble, housing bubble. And after that crisis, you then get further measures that are put in place to try and get the bubble going again, generally through monetary policy.

And that then encourages all of that money to go back into something else. So this kind of cycle has just repeated itself over and over and over again, really over the last kind of 40 years. And that's what we saw after the financial crisis was just tons of money, all searching for somewhere to go, it all went into these big tech stocks. And the reason for that was, yes, you know, tech seemed new and exciting and whatever. But also investors knew that the business models of these companies were that they might not generate a lot of profit in the short term, but over the long term, their goal was market dominance. And when you have market dominance, you know, you don't necessarily need to demonstrate a way in which you can kind of sustainably and fairly, well, fairly, you know, like in capitalist terms, generate profit. You

can just squeeze consumers, squeeze workers and use your market dominance to extract economic rents. That was kind of the bet. And the bet paid off. And it was kind of a self-reinforcing bet because the more money these companies were able to access, the better they were able to consolidate their market power because they could buy up other firms. They could undertake massive investment, even if it wasn't profitable.

And that is what they did. Yeah, I think it's great that you make that connection to the tech industry and what was going on then. And even back to, you know, the first tech bubble, which, you know, was in the 90s, crashed around 99, 2000, you know, and then obviously, we see new bubbles constantly emerging. What I'm interested in digging into further in that aspect of it is that, you know, post 2008, we have all of this excitement around the tech sector, right? Like the iPhone has launched in 2007. So the app economy is growing, the gig economy is emerging out of that there is both the growing monopolies in Silicon Valley, but also

this kind of vibrant startup ecosystem where you can have the most rudimentary app or product or maybe just an idea and still get millions of dollars in funding. So how does it work out for, say, venture capitalists to be throwing all this money out there for companies like Uber that lose billions of dollars over the course of a decade and still are not really showing a profit? Or all of these smaller companies that they're making bets on, many of them might go under, and only a few will end up actually making money in the end. How does that make sense? And how does low interest rates and quantitative easing contribute to that? There was a very interesting transition that really took place in terms of the

nature of financialization around the period of the financial crisis. Because prior to 2008, the big actors that were driving financialization were the big multinational banks, really. And we all know what happened there. It was the role that they played in issuing mortgages, often to relatively uncreditworthy borrowers, and then securitizing those mortgages, selling them on, creating kind of dark entities to hold those assets that turned out to create the problem of dramatic over leverage within the financial system. They were all lending to one another. And there was a huge amount of debt that was created by those financial institutions. And the nature of that debt was not transparent. And the credit worthiness of the borrowers was not high. And when it came down to it, we had the Lehman moment of, okay, everyone stopped and no one knew where anything was. No one

knew kind of what was in these things that they'd be selling each other and everyone panicked, sold the assets, the asset values declined, and suddenly a lot of the banks were insolvent. And that was really the kind of high point of bank-based financialization, financialization that was driven by issuing debt, particularly to consumers. And what you saw after that was the rise of this kind of version of like asset manager capitalism or asset manager financialization. And this is, yes, the big asset managers, the institutions that kind of manage your pensions or the cash balances of wealthy individuals or whatever. Those kind of quite boring institutions that just invest in lots of different assets,

equities, bonds, etc. Like, you know, a company like BlackRock, for example, owns most of the companies and say the S&P 500 and just kind of holds on to them and passes on the returns to its investors. But also, this was the time when riskier, more kind of exciting and sexy parts of the non-bank financial system started to drive financialization. So this was, yeah, venture capital, as you mentioned, but also hedge funds, private equity. And these are all money managers. Now, Hyman Minsky was actually an economist who came up with this idea of like money manager capitalism. And all of these institutions literally do manage other people's money. So you know, if a hedge fund, for example, manages a pot of money generally, that is managing on behalf of a few very wealthy individuals and clients, a mutual fund is a much

kind of more boring institution that's managing lots of smaller pots of money. A venture capitalist is managing, again, often some pots of money on behalf of quite wealthy clients and is investing those in kind of startups and trying to bring those to market and sell those on. Private equity, again, often wealthy people's money that is used to purchase kind of underperforming assets and then sell them on at the end. So all of these things are really about managing these pots of money that have become so prevalent in the global economy after the financial crisis. And why were these pots of money so big? Well, a big part of that, as we've seen, was to do with the policies of central banks. It was the fact that a lot of that cash that was created by the central banks found its way into the pockets of one kind of money manager or another because they had to exchange bonds for cash.

There was a lot of cash going around. Interest rates obviously were very low as well. So it was very easy for kind of large, powerful institutions to borrow money. The banks could not themselves lend that much more money to consumers again, because they were so heavily over indebted. So a lot of that lending power is then directed to other financial institutions and to kind of corporations. So there's some kind of bank involvement in that. And that is important, particularly when we think about the biggest of the big tech companies. But generally, you know, a lot of this is like institutions that are holding and managing other people's money. The other factor,

of course, is just the astonishing increase in inequality that we've seen over the last kind of 30 or 40 years that mean that there are a lot of very wealthy people who have a lot of money that they need someone else to manage. And that kind of goes into the finance sector and helps to kind of push this process of asset manager capitalism. And this was really, really important when it came to, I would say what happened after 2008, which was the kind of reemergence of a new tech bubble. So first, yeah, you had venture capital, and venture capitalists had loads of money, low interest rates, they could borrow relatively easily if they needed to. And a lot of kind of, you know, new small startups to choose from. And yeah, a kind of relatively propitious environment in terms of being able to

invest quite easily, take risks that often weren't as risky as they otherwise might have been, because of just the vast expanse of money that was out there. And also because there were these growing powerful tech companies that generally, if you are as a venture capitalist kind of investing in a startup, you can think, right, well, I'm going to invest in this company, grow it a little bit, and then it will get sold to Google. So venture capital was important in that sense. But so were other kind of money managers that we associate less with tech. There has been a move among even the more boring, stable parts of the asset management industry to try and get some of this piece of the startup growth tech sector pie, which is usually considered too risky for people who are

managing your pension to get into. There's been all sorts of mechanisms that have been created to allow some of that money to find its way into the tech sector where returns have been high. Private equity kind of, you know, to an extent in here, but less so because we're looking at kind of newer industry rather than up basically pumping money into the tech sector and into startups, which were therefore able to grow because there was so much money that the expectation of immediate profitability was less pertinent, was less of an issue. They could draw on huge stocks of cash and not really have to demonstrate profitability over the long term. So again, this similar sort of situation as to what you had before the tech bubble. But this went on for much longer, because central banks just kept creating more and more and more cash. It just became a lot

easier to really grow as a company without ever demonstrating often any profits. And as you said, you saw Uber, there were lots of other examples of this. Despite that absence of profitability among many of these smaller companies that have grown up over the last 10 years, these institutions have made huge amount of money. And part of the reason that they have made huge amounts of money is that they haven't been getting that money from the profits necessarily of these companies, they've been getting it from capital gains. So the difference between the value at which they buy, say, the company and sell it, or the difference between the value at which they buy the shares and sell them. And that is part of this system.

That's part of this problem opportunity of massive amounts of liquidity. Because as long as you have more and more money being pumped into the financial system, as long as you have investors that are thinking, I need to invest my money somewhere, where's it going to go? Then more money is going to flow into these stocks, more money is going to flow into the tech sector. And if more money is flowing into this stuff, then the kind of prices of, let's say, tech stocks are going to rise and you're going to be able to make more capital gains. So it creates this kind of self-reinforcing cycle that if it was happening anywhere else, you would call it kind of like a pyramid scheme, really. Because, you know, newer investors are being paid off based on the stuff that old investors have put see some pressure being put on some of these companies that haven't been able to demonstrate profits, particularly ones like Uber. Right. And this is interesting because it's shown that not all of these companies are the same. Some of them have basically been able to kind of carry on without demonstrating any profits, whereas investors are now saying to others, we want to see some evidence of long term viability.

And again, all of that comes down to, can they sustainably hold onto a monopoly position? With someone like Uber, it seems like that's less the case because you've got challenges, but with other companies, it has been a lot easier. Yeah. Just to back up what you're saying, if you look at an Uber, yes, it's lost billions of dollars over the course of a decade, but those early investors, the people who funded it early on when it IPO'd, they were able to make money on their capital gains to sell the shares that they had purchased at a much lower price, you know, when they initially bought in, and then it went on the public market, and they could they could make their money back. And certainly, there are

many examples like that. But I want to pick up on what you said about pyramid schemes, because financialization is a topic that you've talked a lot about up on what you said about pyramid schemes, because financialization is a topic that you've talked a lot about and that you've written about, that you've researched. And I'm also interested in how these monetary policies, the low interest rates, quantitative easing have also contributed to or have also extended into our lives in a sense, right? In recent years, we've seen the growth of meme stocks, cryptocurrencies, NFTs, these things like this that are highly financialized and speculative. And part of the explanation is that people are putting their money into these speculative ventures or bets or whatever you want to call

them. On one hand, because their wages have been stagnating for so long, and it's difficult to get ahead in any other way. So you're going to risk it on a moonshot. And then on the other hand, that there's nowhere else really to put your money and get much of a return because interest rates have been so low for so long. And so people risk it on these cryptocurrencies, NFTs, meme stocks to hope that they'll be one of the people who get a big return and are not one of the people who lose everything. So what do you make of those developments? And how do you see those monetary policies kind of influencing that? One way of looking at what's been going on in terms of monetary policy is to view it through the lens of what's called the kind of portfolio rebalancing effect. So you're taking away safe

assets like government bonds, and encouraging investors to therefore when they're reaching for yield, go for riskier assets like equities and corporate bonds and even kind of like, you know, high risk corporate bonds, high yield corporate bonds. In doing that, you are encouraging investors to take riskier bets, basically, rather than keeping their money in this safe asset that's going to pay them back over the long run. You're saying, go and put your money somewhere where it's going to get you a sustainable rate of return for your investors. And that's generally going to be in the tech sector. And this, as you said, is also something that's happening when we look at retail investors and ordinary savers as well. It's not just something that's being driven by big financial institutions, even though those

are kind of the main thrust behind it. In recent years, we have seen also lots of retail investors saying, I'm not getting any money if I just park my savings in a savings account. Even things like my pension, that's not doing so well either. And as you mentioned, my wages probably haven't gone up that much at all. And this is really part of a wider shift that we've seen over the last 40, 50 years, whereby individuals are encouraged to disidentify with their position as workers, and to strongly identify with their position as small owners. So owners of like small amounts of shares, for example, in their pensions, or of housing, and to really start conceiving of their

material interests, not necessarily in terms of their wages, but in terms of their balance sheets. So the balance between their assets and their liabilities, you know, the value of their debts versus the value of their home or pension or whatever. And when you have that kind of mindset, even as an individual investor, you are constantly looking for the best way to invest your cash. That is the same kind of dynamic as what you see with some of these bigger financial institutions. But the difference is, of course, that they are in a lot of ways more protected, because they have better access to these systems, they have better access to the state, and they just have more knowledge. Whereas the average retail investor is less well protected. That's usually why the investment strategies of retail investors and the institutions that manage their money are more

regulated than other areas of the economy, because you don't want people kind of putting all their money in a pyramid scheme and then finding that they've kind of been scammed and lost it all. But with crypto, you have this massive unregulated set of assets that the government hasn't, I mean, has started to express some interest in regulating, but up till now hasn't really said that they're going to do anything about. That is probably not anymore, but that was initially the kind of preserve of retail investors. Now, these were more knowledgeable retail investors, because you had to have a kind of base level of knowledge, even just to be able to interact with some of these technologies, but they were still retail

investors. Now, lots of big financial institutions obviously have now come into the crypto market, but there are still a lot of ordinary savers who are putting their money into these assets. And as the kind of popularity and pop cultural significance of crypto has increased, then you've seen less and less skilled and less and less knowledgeable people jump on this bandwagon. And as a result, it has come to look like a pyramid scheme, right? And especially when you think about some of the kind of meme coins and the NFTs that have no underlying business case whatsoever. You know, with Bitcoin, for example, you can see some potential long-term uses for

this technology, and particularly for the technology that underpins Bitcoin. And the very interesting thing about Bitcoin is that the price of Bitcoin tends to, well, I mean, generally does look the same as the amount that it costs to mine any extra Bitcoin, which creates this kind of stabilization mechanism because you've not just got people pouring loads and loads of money into it, you've also got people mining it. Now, mining it is also very bad. It's bad for the environment, but it kind of looks therefore less like a pyramid scheme because you have this process of kind of managing the supply and demand, I suppose, for that asset, that security. There are others like Tether, for example,

that is pegged to the dollar um and so that's supposed to be a way of managing the supply and demand for it as well but with a lot of other assets you know they are literally just created by a group of people that group of people tries to figure out certain ways to convince the investors that they are trustworthy and to create some constraints on new supply of this thing or like who's able to access it or whatever. And that's often done in quite opaque ways that will have to do with the networks that exist within this community. But those projects where there is no real limitation on the ability of the creators to create new tokens, They are just pyramid schemes, right?

You have a bunch of people who are buying, let's say a new meme coin chip or whatever. And the people who created this meme coin just suddenly have loads of money in exchange for something that doesn't really cost them anything to produce any more of. What do they do?

They plow that money into marketing to get more people involved in the scheme. They maybe distribute it to a bunch of early investors who will then go out and proselytize and say, I made so much money on this thing and you can too. And those things are literally just pyramid schemes and they will collapse when new money stops coming in. When is new money going to stop coming in? Number one, when central banks stop creating new money. And number two, when new retail investors stop entering this market because they don't have enough cash to spare. And that is what is going to happen now when we have very sharp increases in inflation, because people are not going to

have so much money to save. They're going to be drawing down from their savings just to really be able to pay back existing obligations and pay for things they need to survive. Yeah. And that leads perfectly into my next question, which is, you know, we've been talking about what has led up to this point we're in right now. And in recent months, we've heard a lot more discussion about raising interest rates, especially as we've seen inflation increasing. And, you know, I'm sure that's going to increase even more with what's happening in Russia and Ukraine. And so in response to that inflation, the proposals have been, okay, we need to raise interest rates to tame this inflation. And you recently wrote a piece in Tribune where

you unpack those arguments and went back to what was happening in the 1970s to see if that argument really applies. That was a period when high interest rates were used ostensibly to tame high inflation. In the UK, they were over 15%. In the US and Canada, I believe they went over 20%. So what conditions were you observing back in the 1970s and 1980s that you also see replicated today in driving that inflation? And is the narrative we typically hear around why interest rates were raised in the 1970s accurate? Did it really tame inflation as we're told? Yeah, let's start by just this question of the similarities in terms of what's driving inflation, because the big thing driving inflation now and back in the 1970s is energy prices. Back in the 1970s, it was down to the formation of OPEC,

that kind of cartel of oil producing countries, which basically came together and said, we're going to dictate the price of oil from now on. And that was, you know, very successful for the OPEC countries, and was seen as a kind of, you know, form of resistance of against kind of Western domination, and has made a lot of those powers very rich. But at the time, when that cartel was formed, the price of oil spiked dramatically, because people saw that the days of kind of easy oil were potentially over. And that created a significant problem of inflation across the global economy. Now, the reason for that is, first and foremost, obviously, that oil is required and various different forms of energy are required to transport goods. So, you know, in a supply chain, you're going to be using oil for transportation or some form of

energy for transportation at some point. That's the obvious way in which it's linked. But also it's very easy to forget the extent to which these energy resources are used in the production of actual commodities. So hydrocarbons are used to produce all sorts of kind of forms of plastics and various other kinds of materials. Natural gas, for example, is an extremely important component in food production because it's used for fertilizer. So there's been a strong link between natural gas prices and food prices, which has been really, really problematic. And then there's the fact that commodity prices tend to kind of move in sync as well. So when you see higher oil prices, you also tend to see higher prices of other commodities as well that will go into kind of manufacturing things. So

energy prices really are the kind of cornerstone of the global economy and of global prices in general. When they go up, prices tend to go up across the board. And that's what we saw in the 1970s is also what we're seeing today, different drivers. So we had a pandemic, which substantially reduced the demand for energy, encouraged suppliers to hold back on new supply, new existing stocks, so that when we emerge from the pandemic, perhaps somewhat quicker than people imagined. And when oil demand rebounded, perhaps somewhat quicker than people imagined, the price went extremely high, exacerbated by all the geopolitical tension that's going on at the moment. So we have a similar sort of situation in the sense that oil and gas prices are high,

that creates issues in terms of the transportation of people and goods and whatever, but also it's feeding into food prices. And this is going to be a really, really significant issue, actually, particularly in the global south over the course of the next several years, is that you've got natural gas prices high, that creates difficulties in terms of producing fertilizer. You also have Russia, which is one of the biggest food producers that there is, particularly when you think about grain and various other kind of basic foodstuffs. Yeah, I was reading the other day that countries like Egypt import, I think, like up to 80% of their wheat and things like that from Russia or Ukraine. So, you know, it will have huge impacts on them.

Yeah, totally. And even if those countries aren't, you know, imposing direct sanctions, Russia is being squeezed out of the global financial system. So it's just much harder to even pay Russian producers for anything that they are producing. So it's going to affect everything. So, yeah, inflation is being driven up really across the board. Now, there's an obvious kind of solution to this, which we should have looked at many, many years ago, which is renewable energy, and just really, really diversifying the kind of energy sources that we use. But that is going to take some time, even if we start investing in it now. So this is a problem that we are going to be

seeing and experiencing for a while, probably for the kind of medium term. And in response, there is this argument that we need to raise interest rates. Now, as I mentioned earlier, the transmission mechanism there is supposed to be you raise interest rates, you make borrowing more expensive, so corporations invest less and create fewer jobs. But inflation is not being driven by that. It's not being driven by corporations creating too many jobs, which are kind of encouraging workers to demand higher wages. We've actually not seen that at all, like real wages, you know, wages when adjusted for inflation have fallen in a lot of countries in the UK, for example, they've fallen in the US, you've had long term kind of stagnation in people's incomes. So workers aren't doing very

well, they're not even getting wage increases that would be required to account for inflation, let alone wages increases above inflation. So when you're saying, right, okay, we need to raise interest rates and basically constrain economic growth, constrain employment, you are solving a problem that does not exist. You are saying we need to cut wage growth, cut employment, and those things are already at low levels, that's not going to affect inflation, because inflation is being driven by, you know, these geopolitical issues, these issues around energy prices, and you're making life harder for working people. So there is this interesting problem right now, you know, I've spent most of this time talking about the problems that have been created by loose monetary policy, by very low interest rates, by quantitative

easing, right? And so people think, even some people on the left, oh, well, then it will be great for us to stop doing these things and to increase interest rates all of a sudden, because it will reverse all of the gains that have been made by the wealthy. But that isn't true. And the only way to reverse the gains that have been made by the wealthy is to start taxing those gains and to actually start expropriating some of that property that has been often acquired either illegitimately or its acquisition by private actors has created structural problems for the economy itself. So I'm thinking particularly here about tech infrastructures that should not be privately owned, that should be kind of corporatively owned or publicly owned

or whatever. That's going to be the only way of actually clawing that wealth back. You can't just do it by kind of increasing interest rates because these people will see that coming and they'll change their investment strategies in good time whereas the average retail investor or the average borrower who is often you know already paying over the odds in terms of interest rates is not going to be able to adjust as quickly they're often already kind of up against it in terms of being able to meet their basic obligations to creditors. So you'll be making working people poorer without clawing back that money from the rich. And that is a real, real problem. It is also a similar sort of thing as to what happened in the 1970s. And this was really part of a much broader

struggle, the kind of birth of the neoliberal movement that was aimed at compromising the power of workers. So, you know, the narrative that was pushed was that inflation was being driven by workers demanding wage increases, and not being driven by these kind of external issues around commodity prices. Now, workers were more organized at the time, and they were able to demand wage increases in line with inflation. But that inflation had already taken place, it already kind of manifest itself in terms of rising energy prices. So the question was, was really who was going to have to pay for inflation? Workers were saying, well, capital is going to have to pay for inflation, you're going to have to compensate us for rising prices. The state and the neoliberals ended up saying, no, workers are going to pay for inflation. And

the way that we're going to do this is by raising interest rates to create unemployment, which will compromise workers' bargaining power and prevent them from asking for wage increases in line with inflation. If the same strategy is pursued today, it's going to be even worse, because workers have barely any bargaining power now, nothing compared to what they had in the 1970s. And so you're just going to get the deepening of the issues that we've seen up to now around insecurity, precarity, low wages, all of these different sorts of things. I really appreciate you drawing that distinction, right? And what is actually driving that inflation and whether interest rates are really going to solve that problem, which as you say, they are not. But to end our conversation, I have two final questions, kind of digging into the points you made around tech and then what else we should be doing in response to this. And so on the point about tech, one of the kind of, I guess, memes of people who are critical of tech, you know, on Twitter is whenever a tech company like a crypto company or a gig company does something ridiculous, there can be a response like, okay, we need

to raise interest rates to kind of cut off the easy money so that they can't be funding these ridiculous projects anymore, right? And so as the prospect of raising interest rates has come up, a lot of people who are critical of the tech industry have been open to that idea in the sense that like, okay, we can finally tamp down on what's going on in the tech industry and the negative consequences that come out of that with the monopolization, with the business models that are distorting the economy, all those sorts of things. So what would your response be then to people who do want to see interest rates raised for that reason, but then as you described, it's not solving these larger problems around inflation and could actually hurt workers? Yeah, I mean, this argument, I see it a lot. And it's just

wrong. You're not going to undo monopoly power that has already been asserted by raising interest rates. Now, the way that these companies got to their positions of monopoly power was that they were able to borrow very cheaply, it was that there was a lot of liquidity, they were able to buy up their competitors, etc. But they are now in that position, where they control huge sections of the market, like Amazon, for example, is already like a parallel infrastructure, raising interest rates is not going to stop Amazon being a monopoly, the same with Google, like these things are already embedded, they're institutionalized, they have political links, they have, you know, very strong links to kind of other areas of the finance sector that mean that they're always going to be able to borrow cheaply because they have these really, you know, this massive amount of economic power.

And just raising interest rates is not going to undo that. You cannot undo a political change through just a kind of economic intervention. It's kind of like saying, we privatized like a load of assets on the cheap. And that's something that has already happened. So like just taxing some of those gains will like deal with the problem that has created in terms of inequality. But that isn't because those things have already been sold off. Like that avenue for capital accumulation has already been created. Those institutions already have market power within the private sector. And the only way to undo that is to undo the actual process of making them private companies in the first place. And it's the same thing with these big tech companies. You're not going to be able to stop them from being the institutions that they are by just fiddling with the kind of economic conditions that facilitated

their rise and their growth. You have to really tackle the foundations of their market power. And the foundations of their market power aren't low interest rates. That was just something that facilitated their rise. The foundations of their market power are firstly their links with states. Secondly, their links with big financial institutions. And finally, you know, their business models, which rest on the creation of spaces that are entirely dominated by one company where rents can be extracted, where data can be extracted, and where people kind of have no other options in terms of where they can really go for that search engine provider or mobile phone or whatever, because these small number of companies dominate the infrastructures that we all use to interact. And we've seen, you know, a lot of people would say, oh, well, you don't have to have a phone or you don't have to use Google or whatever. But we've seen over the course of the pandemic that like, these things are basic infrastructures. It's like saying you don't have to have roads. So let's have private companies running our roads

and like, you know, forcing us to pay them rents on the basis of that. It's a great business model. It's very profitable. Ultimately, you know, it's not good for anyone other than the people who are making these profits. So it's kind of like saying, you know, we have private roads, let's say, or privatized rail infrastructures. And there are these small number of companies that own all of this infrastructure that we all need to survive. So let's raise interest rates and see what happens. Like that's not going to stop their monopoly power. It's not going to change things. It may potentially stop, what it will do is may potentially stop other new monopolies from emerging. But then again, those new monopolies could be competitors to the existing monopolies. There's a kind of oligopolistic situation, right, where you start seeing some sort of shifts. So clearly, just tightening monetary policy isn't the answer.

We do need to wind down quantitative easing. There's absolutely no question about that. And we actually more profoundly need to really challenge the basis upon which central bankers are making a lot of these decisions and democratize central banks, I would argue. We also need to dramatically increase taxes on the wealthy and find new ways of taxing wealth to claw back some of the gains that have been made over the last decade or over the last several decades, really. But moving forward, the way of tackling the dominance of these companies is not just raising interest rates. The fundamental basis of their power is that they are private owners of stuff that we all need to use. Now,

there are various ways of dealing with that. You can either, you know, directly expropriate them and say we are nationalizing part of these companies, we're transferring them to public ownership. Another way of doing this, which I think is potentially interesting and has a lot more potential public support would be to create public democratic or cooperative democratic alternatives to say you know you could have a public search infrastructure or a cooperative ride hailing platform or food delivery platform or whatever at the same time as regulating these companies much more heavily so that they cannot simply just take rents off their kind of exploitation of our data and our activity so it's more complicated really it's it's not so easy as just saying oh we're going to take on the cannot simply just take rents off their kind of exploitation of our data and our activity.

So it's more complicated, really. It's not so easy as just saying, oh, we're going to take on the power of big tech by raising interest rates. All you're going to do is actually harm the workers who are already being exploited by those companies. Why can't we just have a silver bullet that is going to solve everything? Yeah. UBI or like all the other kind of big solutions that everyone proposes to everything. It's- UVI, land tax is another big one. Oh yeah, yeah, the land tax. Or the MMTers who say all we need to do is return to printing money

to finance everything we need. Yeah, I mean, anything that just says we have one solution to this massive complicated problem that isn't about tackling class relations and that isn't about changing the structure of ownership is just like moving the furniture while the house burns. No, I think that makes sense. And just to end, you said low interest rates are not going to be

the solution to what's going on here. And you've mentioned a number of the policies that we should look at instead to address these significant problems that have been created by the growth of the big tech industry, these major companies. Is there an ideal place where monetary policy and interest rates should be to stop the more speculative activities that we're seeing in terms of funding these companies that are losing a ton of money and having really negative social outcomes? But also, you know, what we're seeing in like the crypto and NFT space and how people are flooding into that because they're not finding other places to put money and their wages are slowing and all that. And then, obviously, as you said, monetary policy alone is not going to

be the solution to that. So is there any other policies that you think that we should be looking at in order to tame the tech industry and tame inflation? The first thing to say is just that monetary policy is a really blunt tool because you're affecting the rate at which everyone is borrowing. And some kinds of borrowing, you don't want to make more expensive. You don't want to make people who are facing high interest credit card debt, you don't want to make that borrowing more expensive. You do want to make it more expensive for Google, Alphabet, Amazon to borrow money to purchase their rivals. And you'll probably want to prevent them from actually doing that anyway through legislation. But that creates a problem because the tools that the

central bank uses to influence the interest rate are fairly blunt. And generally, the transmission mechanism is just as affected by the power dynamics that exist within the capitalist system as anything else is. So it tends to be less well-off people who are seen as less creditworthy who end up paying higher interest rates, even when interest rates are relatively low. Like when we say interest rates are at 1% or whatever, there are still going to be a lot of people who are paying 20, 30, 40, like 1000% Sometimes when you look at the actual rate of interest, they're paying on short term credit card debt, loan sharks and payday lenders and things. So what we really need to do is kind of not just use this blunt tool of affecting the price of borrowing, we need to

really start allocating borrowing much more actively. And so that means really kind of having, I would say, a kind of public financial system that is able to allocate cheap money to worthwhile pursuits. So that's like worthwhile investments, let's say cheap money for investing in green tech or decarbonizing our infrastructure, any of the things that are kind of socially desirable. Also, lending support to people who find themselves in a lot of debt that is unpayable, and that is unsecured, and you know, they need some help to get out of that. And then have, you know, a different system, and potentially much higher interest rates for just the private sector, which has benefited hugely from this, this period of low interest rates, even as those who actually needed to benefit from that haven't. So public

finance is, I think, really, really important. National investment banks, for example, and also having a public retail consumer banking system that can particularly support less well-off consumers. The other thing that is often not addressed in these debates is social security itself. So the reason that people feel the need to take all of their savings and invest in crypto is because they're thinking about their pensions, they're thinking about long term security. If we had a better, more secure system of public pensions, there would be less reliance upon asset markets to provide a basic level of security. So you need to increase pensions, you need to provide social housing,

which is going to cut into these dynamics as well. And then when we're also thinking about this question of market power and the market power of tech, I've mentioned already, they need to create public alternatives, but also obviously they need to be regulated. Now, a lot of people see regulation as like a silver bullet, like you're just going to stop merchants and acquisitions, and that's going to deal with everything. It's not, but it would be a start. There's a lot of different policies that you're going to need here to achieve this much broader aim of rebalancing power in the economy. So whether that's rebalancing power between the tech companies and people who use these infrastructures or between the tech companies

and their workers or between finance and the rest of the economy, there's lots of different targeted policies that you'd need to do to tackle all of the different foundations of the power of these institutions. So yeah, regulating is obviously one of them, stopping further M&A, potentially, yes, breaking things up. Obviously, there's a very strong case of doing something like breaking up Instagram and Facebook and Google and YouTube or whatever, you know, these platforms that allow for just the kind of indiscriminate harvesting of data in a way that is obviously very regressive. So yeah, I'm not saying that, you know, the kind of Warrenite solution to all of this is wrong or bad, we can definitely pursue that. The big problem being whether or not there's any willingness within

the state to actually do that. But it would have to be accompanied by a lot of other measures as well. Yeah, antitrust also not one of the silver bullets alone. Yeah, you're going to need other policies besides that. Grace, it's been a really enlightening conversation. Unfortunately, I can't just say raise interest rates whenever a tech company does something stupid. But I've appreciated learning more about what's going on here, the foundations of it, and the real solutions that we need to solve these problems. So thank you so much. Thanks for having me. Grace Blakely is a staff writer at Tribune Magazine and the host of a World to Win podcast.

She's the author of a number of books, and you can find the links to those in the show notes. You can follow Grace on Twitter at Grace Blakely. You can follow me at Paris Marks, and you can follow the show at Tech Won't Save Us. Tech Won't Save Us is part of the Harbinger Media Network, and you can find out more about that at harbingermedianetwork.com. And if you want to support the work that goes into making the show every week, you can go to patreon.com slash techwontsaveus and become a supporter. Thanks for listening. Thank you.