Over the last two weeks, you could hear rumblings under the global financial system as one large, ugly crack appeared after another. Soon everybody was bracing for an earthquake.

We have just witnessed the second and third biggest bank failures in American history, putting the health of the financial system on high alert. Events have sent global markets reeling with fears of fallout not seen since the 2008 financial crisis.

Walker Todd was assistant counsel of the New York Federal Reserve, assistant general counsel, and research officer at the Cleveland Fed, and has been actively involved in financial regulation for decades. When he looks at the U.S. banking sector, he sees several problems driving these recurrent crises, chief among them a profound transformation in capitalism known as the “financialization of everything” in which corporate executives chase short-term profits through risky activities. Businesses and their bankers securitize accounts receivable, thus separating ordinary consumer transactions from their primary funding sources. Then the bankers end up demanding bailouts when things go wrong and the consumers stop paying, all the while lobbying against regulation and oversight.

Todd, a former INET grantee, spoke to the Institute for New Economic Thinking about how serious this crisis looks to him and why it came to be that banks are allowed to play casino games that wreak such havoc.

There’s a motto on Wall Street: “I.B.G.-Y.B.G.” or “I’ll Be Gone, You’ll Be Gone.” The idea is that long as you’re making money right now, what happens tomorrow is not your problem. According to Todd, it is most definitely our problem. He explains why bailout capitalism is bad for everybody.

Lynn Parramore: Let’s start with a general assessment. How bad is this current situation in your view on a scale from 1 to 10?

Walker Todd: Two years ago, when it looked like the pandemic was coming under control with vaccinations and a lot of people thought 2021 might be a normal year, my fear of a financial crisis was a 3. Now I’d say we’re up to about a 6.

LP: Before we dive further into the current situation, can you give a little history on how banking has changed over the years in ways that helped get us here?

WT: In the 1980s, commercial banks decided they wanted to enter the investment banking business, partly because they were becoming bigger and bigger. Walter Wriston at Citibank wanted to be number one. He wanted to be to finance what General Electric was to manufacturing. Investment banking had been separated from commercial banking in 1933 during the Great Depression with the Glass-Steagall Act. Now pressure rose to repeal it. That repeal (1999) played a role in what later came to be called “the financialization of everything,” which we’ll talk about.

In the ‘80s, big commercial banks landed in serious trouble through some of their lending decisions. What had been a foreign lending problem became a domestic problem linked to oil prices. The high price of oil, about $25 per barrel then, led the banks in Texas, in particular, to keep investing in new commercial and sometimes residential real estate ventures, assuming the whole world would keep moving to Texas for the oil boom. They didn’t notice when the oil price stopped rising. Something like half or two-thirds of all the loans that later went bad in the Texas banking system were booked after oil prices had reached their peak. In ‘85 and ’86, Saudi Arabia pushed down the price of oil to squeeze other producers out of the marketplace. In West Texas, oil prices collapsed to $10 a barrel. Every loan in Texas looked bad.

That system-wide failure in Texas was really the first banking crisis in my career that looked similar to what we’re seeing today. There have been several more since then that we know about. In the late ‘80s to early ‘90s, there were real estate crises in coastal regions like New England, the Sunbelt Region, and the West Coast. Meanwhile, New York banks faced a non-stop series of major issues. In Texas, real estate and bank loans that collapsed in ’86 and ’87 didn’t really recover to their former value until around 1995. For Texas, it was pretty much a lost decade.

In 1998, Long Term Capital Management, an investment bank and private equity fund in suburban Connecticut, blew up. They had attracted money and talent because some of the principals were former Federal Reserve people and Nobel Prize winners. But their mathematical formulas didn’t account for the possibility that Russia might default on its debt. The Fed had to come to the rescue. That was a forerunner for what we’re dealing with now with Credit Suisse.

Fast forward to the period of low inflation and low growth after 2001. The real estate boom set in, and that’s when you really had the financialization of everything. Up to then, the practice had normally been that banks would make mortgage loans and either keep them on their own books or, even if they sold them, they would sell the whole mortgage to Freddie Mac, Fannie Mae, or to the private sector. Then someone came up with the idea that if you carve the loans into tranches and sell the tranches separately, you might receive more money than if you sold the whole thing.

It worked out for a while that way and that’s why everyone did it. That opened the door to the financialization of everything.

LP: What does this concept, the “financialization of everything,” entail?

WT: That’s when you start treating everything like it could be a bank liability — auto loans, credit card loans, and the like. You treat them the same way as the new mortgage credit – carving them up into tranches with different levels of credit risk and interest rates attached and selling them off as chunks instead of altogether as one block.

A New York securities lawyer friend and I used to speculate that we could even securitize and sell air rights in New York. That way you would be selling the blue sky itself! Obviously an absurd concept, but I assure you that people likely gave serious thought to it.

LP: How is the current banking crisis an outcome of the process of financialization?

WT: In several ways. Going back to the ‘70s and ‘80s, Walter Wriston at Citibank introduced the concept of “brokered deposits,” certificates of deposit that could be negotiated in the secondary market and resold. Nobody ever thought of doing that before. Traditionally, you took out a deposit in the bank, a CD account, and you kept it. That was that. You could borrow against it at the bank, but you didn’t go try to sell that to somebody else.

Thanks to that process of creating brokered deposits, the liability side of the bank’s balance sheet became financialized. The FDIC eventually put limits on the percentage of deposits that one bank could have that were brokered deposits because they were viewed as non-core deposits, quick-to-flee money, money that won’t be there in time of need, etc. That’s very much like what we’re seeing today.

On the asset side, banks like Silicon Valley and Signature were loaded up with things like mortgage-backed securities and also long-term Treasuries. They were doing that just to have the appearance of liquidity, the appearance of risk-free assets while ignoring so-called duration risks, that is, exposure to interest rate problems the longer the term of the bond or other obligation that you’re holding. By ignoring these issues, banks like Silicon Valley, First Republic, and Signature painted themselves into a corner. They have brokered deposits chasing the highest yield funding assets that have embedded risk that is not recognized in the kind of accounting they wanted to see.

LP: Regulators evidently knew these banks were in risky territory back in 2018, after President Trump signed a bill rolling back the Dodd–Frank Wall Street Reform and Consumer Protection Act. The Financial Stability Oversight Council listed mid-sized banks that could pose a risk because of their uninsured deposits, which couldn’t be covered if they failed. The list showed that Silicon Valley Bank had over 90% of deposits uninsured and First Republic Bank had 67% uninsured. So they knew, yet nothing was done. That seems like a pretty big regulatory screw-up. What’s your take?

WT: It was a regulatory screw-up, but it appeared to be one mandated by Congress under political pressure at the time. Randal Quarles of Utah was then Vice Chairman of the Fed in charge of supervision, and he was willing to listen to the banks’ arguments that these changes should be put in place to make them more competitive. But even if he had said no to the banks, I think they would have just gone to Congress and spread enough money around to put on pressure to get the changes they wanted.

LP: So the money and politics aspect of this story is quite significant.

WT: Totally. In fact, I’d say that at almost every stage of the game. From a traditional bank examiner’s viewpoint, one of the problems with brokered deposits held in out-of-state banking institutions is that you don’t know anything about the banks and you don’t know anyone who does. Well, what about all these mortgage-backed securities? Typically, they’re covering out-of-state mortgaged property. You don’t know anything about those properties or the nature of the local market.

So you’re essentially gambling deposit money on properties that you know nothing about. It’s a particular problem with private-issued mortgage-backed securities. Even the government agency mortgage-backed securities only guarantee timely payment of principal and interest. It’s not the same thing as buying a 30-year Treasury because the credit standing of the Treasury is unquestioned, backed by the Full Faith and Credit (the taxing power) of the United States. With a mortgage-backed security, even with a government guarantee of payment of principal and interest, you’re dependent on Congress appropriating or authorizing annual money equal to the amount required — and they may do it or they may not do it.

LP: What current assumptions about banking need to be rethought?

WT: I think the 1999 repeal of Glass Steagall (the Gramm-Leach-Bliley Act) was the major mistake for the long haul. It set in motion trends that culminate, ultimately, in each successive crisis being more difficult to resolve than the one that preceded it. That’s where we are today. It’s not on the scale of 2008, but if we keep mishandling the problem, we can get there.

LP: When crises occur, the risky activity subsides for a while, but eventually financial executives crank up the casino once again to get the profits flowing so that their incomes can expand. What could be done to stabilize things in the long run?

WT: Ronnie Phillips’ “100% Reserve Plan,” also known as the “Chicago Plan,” persuaded me that it’s the next best thing to the gold standard because it requires the parts of banks linked to the payment system to maintain, at all times, assets at market value equal to the amount on deposit. The investments would be Treasury bills, Treasury notes, and Treasury bonds. They could hold those things and you could do away with deposit insurance because if the only assets are Full Faith and Credit government paper, then there’s no point in having it.

And what about the lending side of banking? Like investment banks before the ‘90s, they would have to raise their own funds in the wholesale funding market, knowing that their own notes, bonds, and stock issues raise operating funds. They would use the funds to make loans or they could buy investments or even government securities. The point is to take away the Fed’s argument that we have to rescue these poor babies because otherwise, they will crash the payment system. If they’re cut off from the payment system, what is the risk if they go down?

Drexel Burnham Lambert, a fairly large investment bank, was allowed to fail in 1990 with no consequences for the payment system. We know that some senior Fed officials wanted to make bailout loans to Drexel to save the world, to save the payment system. But senior staff worked hard to persuade the higher-ups that there was no risk to the payment system then, before the repeal of Glass-Steagall. Drexel could not have access to the payment system so there was no reason to intervene. When Drexel failed, it turned out that the accounts had been properly maintained and most people came out okay. The only people really hurt were the shareholders.

That’s the way things are supposed to work out. It’s a political matter that we refuse to go back to this model of handling failures of large banks that look like investment banks or mutual funds.

LP: What is the cost of banking crises to the ordinary person?

WT: The federal rescue costs are spread around so thinly that you don’t notice that $200 of your annual income is going, for example, to a $30 billion rescue package. And even if you didn’t, the government does not fund the rescue through tax but rather a special assessment on the banks. The banking system has to figure out how to swallow the $30 billion and spread it around among depositors and shareholders through fees and the like.

LP: So it’s not accurate when a politician claims that the taxpayer won’t pay for the bailout?

WT: The taxpayer will definitely pay. It may be spread over 150 million tax returns, but the taxpayer will pay.

LP: With financialization driving this ongoing instability, do you see any possibility of curbing the trend through regulation? Can it be done now that the horse is fully out of the barn?

WT: Good question. If you go back in history, you can see that new regulation actually was done through the Securities Act of 1933, the Securities and Exchange Act of 1934, the Investment Company Act of 1940, and other statutes like that. So it was done. But politically it might be impossible today because you’d have to persuade members of Congress vulnerable to political donations to allow the Fed, the FDIC, and others to suspend the financialization of both sides of the bank ledger.

In a trend that has surprised social scientists, fathers are seeking better work/life balance and rejecting their pre-pandemic status as secondary parents – a movement that's good for moms, too.

Betsey Stevenson, economist and Professor of Economics and Public Policy at the University of Michigan Gerald R. Ford School of Public Policy, focuses on the impact of public policies on the labor market. Former member of President Obama's Council of Economic Advisers & Chief Economist at the U.S. Department of Labor, she researches women's labor market experiences, the economic forces shaping the modern family, and the potential value of subjective well-being data for public policy. She discusses with the Institute of New Economic Thinking what we've learned about what workers need during the pandemic, changing attitudes towards work, and why investing in early child care is crucial to the economy.

Lynn Parramore: We've heard a lot about shifts in the job market during the pandemic, with many people, especially women, leaving the workforce. There's been talk of a "Great Resignation" to describe a recent uptick in high levels of turnover, with women leaving at higher rates than men. What's going on? How much of this is about child care?

Betsey Stevenson: There are actually a couple of different phenomena here. One is the question of how many people are in the labor force and whether they're coming back. Women left more than men primarily because the jobs lost during the pandemic were disproportionately jobs that women held — education and health services, leisure and hospitality, retail sales. The numbers through August showed that women were returning to the labor force at roughly the same rate as men, but they have a bigger hole to climb out of, so there's still a bigger gap.

We did see a special slowdown for women in August and September, and I think that it's because women's employment tends to be more susceptible to the virus. Two out of three caregivers of adults are women, so it's not only about child care. When Covid cases are surging, people are not going to want to do some of the in-person stuff where women tend to work, so that's one reason why women lost more jobs. That's a labor demand story, not a labor supply story. On the labor supply side, there's the craziness of the school situation. If you are a woman who quit your job during the pandemic for child care reasons, and you sent your kids back to school this fall, you might be nervous because your kid is one classmate away from being sent home for two weeks. Are employers going to offer flexibility? Can they get time off? Even unpaid time off is better than losing your job. Employers will have to realize that this stress isn't going away soon. Parents can't give sick kids a Tylenol and send them to school like they used to.

Is child care preventing some from going back? Yes, I think that it certainly is. The share of workers who have kids who are child care-age is relatively small in terms of the whole U.S. macroeconomy, but that doesn't mean that child care and issues around taking care of children aren't shaping the labor market beyond the effect on who works and who doesn't.

The Great Resignation is a separate thing because most of the people who are quitting right now are quitting not to leave the labor force but quitting to take a different job.

I did a survey where I asked parents if child care affected their ability to do their job. The answer wasn't so much about quitting, it was turning down promotions, cutting back training, switching to more flexible work that would allow them to manage their child care a little bit better. Then, I asked parents if they planned to do something different than what they were doing prior to the pandemic, and a very high share of fathers — not just mothers — said that they planned to work less or that they wanted to find a more flexible job or some form of better job. What you saw was just a large number of parents looking for something different.

I think that we sort of miss how much pressure that's putting on the economy. If we only focus on the question of whether to work or not to work, we miss the fact that there's a whole bunch of other decisions people make in terms of what industry to work in, what kind of occupation to have, how many hours to work, and so on. What I showed in a report I did for Brookings, "Women, Work, and Families: Recovering from the Pandemic-Induced Recession," is that we're seeing an increased number of people, and particularly parents, changing industries compared to prior to the pandemic. That is even more true for mothers than for fathers.

Lynn Parramore: So maybe instead of the "Great Resignation" we should call it the "Great Reassessment" – people rethinking the work/life balance.

Betsey Stevenson: It's funny you say that because I've been calling it the "Great Reallocation." I think of it as a game of musical chairs. We decided we didn't like the chair we were sitting in, so we all stood up and now we're running around trying to find a different chair. It takes time. Or here's another analogy a lot of us can relate to – it's like we discovered during the pandemic that our spouse wasn't a great fit for us, so a bunch of us got divorced. There would be new partners out there, but it would take some time to find them and figure out who's a good match. This is happening in the labor market. I think there's been a big reassessment, as you said, and that reassessment is leading people to change industries, and that's reallocating workers across the economy. It's showing up in people finding new jobs, and if they're already in a job, of course, they have to quit in order to find a new job. So we're seeing an increase in quits, and some of what's fueling the increase in quits is that there are more opportunities out there. We might have had reassessments in the past, at least at the individual level, but people didn't find good opportunities to make a change. Now we have the combination of opportunities along with people who want to make a change.

Lynn Parramore: What kinds of changes do people want to make? What do parents want?

Betsey Stevenson: Workplace flexibility. Parents have always wanted it but it was really hard to convince companies that it wouldn't be very costly. COVID actually proved the value proposition of flexibility and working from home. Companies were forced out of necessity to give people the ability to work from home, and a lot of them found that people were even more productive. They weren't spending an hour and a half a day commuting, so some worked longer hours. From the company's perspective, they're getting more work out of you. From your perspective, you have more free time because commuting time was just dead time.

When I worked in the Obama administration, we tried making the point to companies all the time that they should give people more flexibility to work from home at least one or two days a week because you'll save them personal time and commuting time that they'll really value, and you'll reduce the stress and hassle of that daily get-up-and-commute. Companies were just so nervous about it. How would it work? What if we had a meeting on that day? Well, now we've learned that it's nice to see your colleagues but you don't really need to see them five days a week. And now everyone has adopted technologies like Zoom. I think even telemedicine will stay, which has its own set of efficiencies. You can see more patients, you don't need to be bringing them into the building and cleaning up the room after them. So I think there's been a lot of permanent changes there.

One of the most interesting things I've seen in the data collected by Pew, which actually matches some of the data I've been collecting prior to the pandemic, is that fathers were the ones who were most likely to say that work/life balance was a struggle and that work was getting in the way of their family time. Pew showed that fathers were much less satisfied than mothers with the amount of time they got with their children prior to the pandemic.

Interestingly, during the pandemic, fathers became more satisfied with the time they were getting with their children. Mothers actually didn't become more satisfied. I think that a lot of mothers like being with their kids, but you kind of like them going to school! If you were the one picking them up from school or dropping them in the morning, you were already getting a ton of time, so the fact that they're home all day for school didn't feel like a real bonus. But many dads felt like they left for work in the morning and got home at night and rarely saw their kids. I think what's really going to be the driver of change over the next couple of years is that fathers don't want to completely go back to the way things were when they had very time with their children. That movement by dads will shape what's available for moms. The problem in the labor market was the idea that this was a mom thing.

Lynn Parramore: Is this part of the demand for gender-blind parental leave, the idea that parenting is not just, as you put it, a "mom thing"?

Betsey Stevenson: Exactly. If we have a labor force where women get flexibility and maternity leave, and men don't take any of those things, then we have two tiers of workers. We have one worker whose primary focus in life is the job and another worker whose focus is split between home and work. That's been our vision of women in the labor force for a long time. We came into the pandemic with a situation in which women were the majority of college-educated workers in the U.S. economy. When we look at people's workplace experience, women had as much experience as men. Women were increasingly in managerial positions. Something that's counterintuitive, and a lot of people don't realize, is that we have had declining birth rates each year, but that doesn't translate to each generation having fewer kids. In fact, women in their forties today have more kids than women of the same age had ten years prior. Health technology and expectations have changed. You had this generation of women who might have been in their early twenties in the mid-eighties and felt that if they really wanted a career they would have to give it their all and because people in their generation had had kids at slightly younger ages than currently, by the time they hit 40 they weren't going to push to have a kid. But I think we've seen an increasing willingness to both try to get pregnant and to use technology to help.

Because the kids were born at older ages, women in their forties were also more likely to have younger kids. I think that really shapes the pandemic. You have a situation where you have more women in their forties with a lot of work experience and school-age children at home. They're saying, ok, I've worked really hard in my career and I went into parenthood full-steam ahead, but maybe I should have slowed down a little. I think that's happening at the same time that we're also seeing workers at the bottom end of the income distribution demanding higher wages, better treatment, more control over their schedule. There's also a lot of mothers in that group trying to figure out how they support their kids and afford childcare. This is a problem because we're in a really intense child care shortage. It's becoming increasingly unaffordable.

Market conditions have pushed up wages in all sorts of occupations that child care workers could choose instead. Amazon warehouse pays $18 an hour. Unless parents are high-income, they have a hard time paying a child care worker $12 an hour. In my district here in Michigan, they just discontinued before-school and after-school child care programs. You think you don't need child care anymore because you have school-age kids and they can just stay after school in a program for two hours while you finish your workday. But without after-school programs, juggling work and kids becomes a lot harder. My school district found the whole ordeal of providing affordable programs to be more than they wanted to take on well before the pandemic. That was a combination of feeling like it was hard to staff, hard to know how much to charge parents. We've got teachers who are unionized and well-paid and have tenure so there's little turnover and you don't have to spend a lot of time hiring people. That's not true in a child care program. And we need to pay child care workers more like teachers.

Lynn Parramore: Should we be looking at child care as a public good instead of putting so much of the cost burden on parents?

Betsey Stevenson: I think we should be looking at it the same way we look at K-12 education. The pandemic taught us that child care and education are two sides of the same coin. We send our kids to school in kindergarten. All of a sudden they're getting educated and looked after for seven hours a day. When we send them to preschool, they're getting educated and looked after, but not every state provides it. So it's on the parent to pay for it. When we send them to a program at two years old, we hope they're being educated and looked after because there's a lot of important developmental stuff that's happening in their brains. We have this artificial separation where after five it's education and before five it's just child care. The truth is, the whole thing is education and child care. The same thing is true of before-school and after-school child care programs. What we really need to be doing is thinking about how we provide a safe learning environment for children in which they're looked after while parents work. That means thinking about government support for child care that runs 12 months out of the year and more than six or seven hours a day. It runs from the beginning of their life until they complete the twelfth grade or university, depending on how we think about education and where we want it to end. What I do know is that we haven't been starting it early enough.

How can we be asking parents to pay for child care when high-quality, center-based care can cost as much as college tuition? Before the pandemic, we were talking about whether parents could afford college, but if you can make it through the first five years of child care, college is nothing.

Lynn Parramore: And of course kids are not likely to be able to go to college if they don't have proper care at the development stages.

Betsey Stevenson: Exactly. Higher-income parents on the hook to pay for child care and college get a respite during the K-12 years when they have a government-funded public school system. But other parents can barely make it through the early years and then they're broke or have to curtail their careers in ways that have permanent long-term consequences that they didn't intend at the time. Then it's harder to pay for college. We really need to help parents pay for that early child care and education because that's foundational and it's also when we struggle the most to pay. We don't have as much time to plan. We have 18 years to plan for our kids to go to college. Some people only have two or three months to plan for the early time.

We know the economics. We know that investing in kids early on has a big payoff later in life. We know that for the most vulnerable kids that payoff is huge. For every dollar the taxpayer spends, they get eight, nine, ten dollars back. Even just on the basis of dollar-for-dollar, it's worth doing. We should stop worrying about the price tag because investing in kids pays back. Right now we are for sure underinvesting in our children. It's causing all sorts of negative consequences in terms of their wellbeing as kids, the outcomes as they grow up, and their parents' ultimate ability to earn a living.

Lynn Parramore: To touch on another workplace concern, is safety still on the minds of people hesitant to go back to work?

Betsey Stevenson: Yes – it's hard to know whether it's labor demand or labor supply, but you do see in surveys that as the Delta variant crept up, people's willingness to do in-person activities for pleasure or work went down. People don't want to do an in-person job where people are sick. Another somewhat gendered issue is that women are disproportionately likely to be essential, frontline workers. They're asking people to put a mask on, asking for a vaccine card, and we've seen an increase in the aggressive and belligerent way that customers are treating workers. That is disproportionately affecting women.

Economists think about the disutility or the displeasure or cost of doing a job. If a job is less pleasant, people will demand higher wages to do it. We would expect a decline in the labor supply to jobs like this, with employers needing to push the wage up. If people don't change their behavior, it will impact how many people are willing to do these jobs. If people have to be paid more to do the jobs, that impacts how much customers have to be charged. It changes customers' experiences. I find flying more stressful now. If people are less likely to fly, it can spiral in a way where you end up having fewer workers in these types of service jobs. I don't know where we end up. Some people feel so much anger about masks and vaccines, and others don't want to be in a place where they feel unsafe.

Lynn Parramore: You've tweeted recently about how important it is for people to have positive narratives about their work. How do you see this in the context of Covid?

Betsey Stevenson: There's an even bigger story here. It used to be that you could start in the mailroom and work your way up. But increasingly, the mailroom is an outsourced company. There are a lot more dead-end jobs because there's a lot more outsourcing. You're in a job where there's nowhere to go. Even if you might like your job and not necessarily want to move up to something else, it's optimistic to know that you could and that you see people around you doing it.

We've created a bifurcated labor market where there aren't a lot of career paths at the bottom. It creates a lot of frustration. People feel mistreated, without opportunities for growth. The jobs where people are getting abuse now are often the jobs where people didn't feel valued to begin with. A lot of employers at the bottom of the labor market have treated workers as if they were disposable. They would tell people who show up for work—who arranged child care to do it – that, oh, we don't need you today. The person says, wait, am I not going to pay for the child care now that I'm not getting paid? That kind of behavior is something people are just super-frustrated about.

Lynn Parramore: What about the careers of child care workers? What kind of path or advancement should they be able to expect for doing this vital work?

Betsey Stevenson: Great question. In education, there's a path. Not everyone is going to become an assistant principal, but there is a path. With child care, we can have people start without a lot of training, but they can apprentice with somebody who has more experience, maybe more formal education, and more knowledge about curriculum-based early child care education. Good centers use a curriculum. When you have a room full of two-year-olds, you want more than one child care worker in the room, so some of these could be more junior workers earning less pay, and others can be more senior. The junior person in the room can work their way up to being the senior person. The senior person in the room can become the senior person at the center. People could move up from working with one and two-year-olds to learning the curriculum for four-year-olds. So even if your expertise is young children, maybe you could end up as a kindergarten teacher.

The problem is we're not credentialling child care workers and we're not paying them like we pay teachers. We should be looking to create a combination of community college and apprenticeship programs to allow people to move into those positions of early childhood-trained workers. There's a potential for that path, but it does involve higher wages.

It's 2021, and Black Americans still struggle harder to climb the socioeconomic ladder compared to whites. For many, the trip is now downward, a situation worsened during a pandemic that has impacted them disproportionately.

Economists William Lazonick, Philip Moss, and Joshua Weitz have been researching the key economic forces that have disadvantaged Black men for decades. In a new study focusing on those with only high school diplomas or less, they find that corporate greed - abetted by government policies designed by the wealthy – turned the dreams of once-upwardly mobile citizens into ashes.

From good times to hard times

To understand what happened, let's time travel back fifty years to 1970.

Nixon was in office, the Temptations were topping the charts, and the first jumbo jet had just taken flight. Black people were moving up, their success fueled by the civil rights movement and opportunities in newly integrated workplaces. There was a mild recession, but Mike, a young Black man from Detroit, wasn't lying awake at night. He had a good job at General Motors, and the union boss told him that any layoffs would be temporary — and cushioned with the union's extra unemployment benefits.

Mike was the son of sharecroppers who left the South in the Great Migration. He had graduated high school in 1964, the same year the Civil Rights Act was passed to guarantee everybody equal access to employment, Black or white. Mike had soon landed a unionized position as a machine operator for GM. He liked his job and performed well. As the year 1970 closed, he got a raise that would help fund the purchase of his dream car, the sleek Chevvy made in his division.

Mike saw GM as his home. The recession had passed and Mike kept his job. He planned to stay with the company long enough to buy a house, put his kids through school, and retire to enjoy his golden years in comfort. The American dream was fully within his grasp.

In 1970, young Black men like Mike were looking forward to joining the blue-collar middle class once closed to them. Up until then, only white men could expect to score the kind of post-World War II jobs that promised growing paychecks, decent conditions, solid benefits, and a career-long tenure at a single company. But now, with firms having expanded production in the '60s, plus support under the newly-created Equal Employment Opportunity Commission (EEOC) and federal subsidies for education, Blacks were leaving behind the dead-end jobs of Jim Crow.

For guys like Mike, determination and a high school diploma could translate into a life of security, and even better prospects for the kids. With parents able to save and plenty of good public schools, the children of the new Black blue-collar middle class could set their sights on the white-collar employment awaiting those with a college degree. They could do it because state higher education was inexpensive and sometimes even tuition-free.

By 1983, Blacks were only 9.2 percent of the U.S. labor force, but they made up 14.2 percent of all autoworkers and 13.7 percent of all union members. Well over a third of all Black men and one-quarter of all Black women in the country's labor force were union members. They had every reason to assume that the future was bright.

But in the early '80s, a shadow began to fall over companies where Blacks held blue-collar jobs. Again there was a recession, but this time, a bunch of Mike's co-workers got laid off. Mike was now a supervisor in his division, but he took a pay cut to help the company weather the storm. Still, he wasn't too depressed. There had been hard times before at GM. Everybody had always come through it together, from the executive suite to the assembly line.

Soon, he, too, was let go. Mike's boss said he would be rehired as soon as the economy improved. But somehow that never happened. The union that had always fought for GM's employees, the United Auto Workers, suddenly seemed powerless. Mike had to take a non-union position as a forklift operator at a warehouse that paid half what he used to make.

Mike had always planned to send his daughter Janice to college. She liked computers and aspired to become a graphic designer. But that required a college education, and Mike just couldn't swing it now. His income was unpredictable and tuition fees at the state university had gone way up. On top of that, the government had started charging extortionate interest rates on student loans.

Janice gave up the idea of a bachelor's degree and enrolled at the community college a few years later. The boom in computer-related jobs of the 1980s and '90s happened without her. Instead, she became a receptionist at the city health department but lost her job in the Great Recession of 2007. Janice never found a similar position. Her husband, a laid-off transit worker, was serving time in prison on a marijuana charge. Their kids' school was so neglected that she worried about their physical safety. Instead of growing up in safety and security, Mike's grandchildren were learning survival skills on the street.

What social scientists call "intergenerational socioeconomic mobility" was not in the cards for Mike's family and millions like it. Or at least not in the upward direction. Economic forces that clobbered one generation quickly toppled the next. And the next.

But what were those forces?

A meaner, leaner vision

Over the next two decades, the overall economy would prosper, but not for Black people like Mike. The Black blue-collar middle class shrank and shrank until it was all but obliterated. By the end of the century, white Americans without college degrees would find themselves on the same downward trajectory as Mike.

Some said what happened was the result of foreign competition. Others thought it was nervous consumers. Whatever it was, auto plants were closing and workers were cut loose, especially the Black ones with less seniority. Lazonick points out that if it had been whites getting kicked to the curb, companies and the government might have tried harder to intervene and see to retraining for workers displaced by international competition. But Blacks were on their own.

What Lazonick and his colleagues describe as "the most important socioeconomic progress for African Americans in the decade after the Civil Rights Act of 1964" was thrown into reverse.

The researchers also identify a culprit that nobody told Mike about: Wall Street.

They detail how in the late '70s, a new model of the economy was emerging that led corporate executives to look at workers differently. Instead of investing in them for the long run, many decided it was better to have a "flexible" workforce that could be hired and dispensed with at any time. Blacks were especially disadvantaged in the new model, explain the researchers, because of the "last hired, first fired" mentality dominating the unions.

The new model really took off when business schools, starting with Harvard, started preaching the new "shareholder value" vision in the mid-'80s. Proponents claimed that corporations should focus on making as much money as possible for their shareholders — the people who hold the company's stock— and never mind anything else. Profits shouldn't be used to pay workers more, to invest in research, or to build plants. They should be used for Wall Street games that would ensure the money flowed into the pockets of shareholders and the executives who increasingly began to be paid in stock.

Those who hold the opposite view, including Lazonick and his colleagues, favor "stakeholder capitalism." This model says that companies should consider all their stakeholders—not just the shareholders, but also employees, customers, and taxpayers. Companies that don't do this may end up wreaking havoc, from environmental damage to driving inequality. If you're only worried about enriching shareholders and executives, then why spend money curbing emissions? Or bother to pay workers decently?

Shareholder value thinking could even hurt the company itself in the long run. After all, how do you keep making good products and services without experienced, dedicated workers and investments in innovation? But increasingly, America's executives weren't thinking about the long run. They were focused on Wall Street and the value of their own stock options. As the researchers observe, "leading corporations lost interest in the fate of the American working class" — and so did the politicians who depended on their donations.

As the '80s progressed, the anti-government Reagan Revolution swept the country, making things even worse for the blue-collar middle class in general. Federal and state governments stopped investing in public education. Unlike many white kids, those of Black people like Mike had no intergenerational wealth to fall back on. They would have a much harder attaining an ever-costlier college degree. Even attending a good public high school was increasingly out of reach.

Over the decade, government jobs that provided another source of security for upwardly mobile Black people were getting cut. Meanwhile, Republican administrations did little but toss big favors to corporate executives, from gutting regulation to lowering their taxes. Everyone was singing the praises of the "free market" as the answer to all economic and societal questions. As Lazonick and his colleagues note, it's not surprising that in the decades since shareholder value capitalism took hold, America has experienced a concentration of income and wealth not seen since the Gilded Age. The researchers describe shareholder value capitalism as "the not-so-invisible hand" that chokes opportunity for the working class, especially for Black people.

It has helped to create a new Jim Crow that exacerbates the centuries of harm already endured by Black Americans.

Restoring American values

Hard work. Education. Better opportunities for your children. A fair shot for everybody. These core American values have receded in the 21st century, largely due to economic ideas that seem to value nothing but the rich getting richer. And Black people, the researchers show, have borne the brunt of the damage the longest.

Jobs like Mike's probably aren't coming back on a mass scale, but America can support other directions for Black upward mobility. Lazonick and his colleagues recommend that for starters, corporations and the rich should be made to pay their fair share in taxes so that the government can invest in things that support the middle class, like education. If Americans are serious about racial equality, then they have to support affordable public education, a cornerstone of the Black middle class, and the advancement of its children into the white-collar economy.

The researchers also point out that America needs the secure business sector jobs it once had — the kind that allowed people like Mike to gain knowledge, skills, and experience for the long run and to contribute their talents over the course of a steady career. Government support for labor unions, they note, has been historically key to ensuring the benefits and conditions that translate into stability and security for middle-class families. It would help companies thrive and be more innovative, too, to retain and benefit from the talents of all the Mikes.

Lazonick and his colleagues believe it's time to dump the shareholder value mentality into the dustbin of history. For them, that means taking steps to encourage companies to shift profits back to workers and into investments in capabilities and innovation. They are particularly down on stock buybacks, a form of Wall Street manipulation in which firms use their profits to buy shares of their own stock instead of using them to invest in more productive activities. Stock buybacks, says Lazonick, should be altogether banned. The Biden administration appears to be receptive to this argument.

The researchers also raise concerns about the types of relatively secure jobs that are today held disproportionately by Blacks — especially in policing and the mass-incarceration industries. They emphasize that prison reform movements have to take this into account when calling for the closure of facilities and defunding the police. People who become unemployed because of these closures need somewhere to go, and hopefully somewhere better. As Lazonick explains: "We don't want to keep jobs in the mass-incarceration industries just because they are jobs. We advocate creating useful social services that could employ people who are now in the mass-incarceration industries—which is consistent with progressive demands for police reform."

Bottom line: A thriving Black middle class is essential not only to racial and social justice in America but to the country's future economic prospects. Nobody wins in the long run when the Mikes of America and their families end up living an American nightmare.

Wealthy predators are playing stock market games with companies needed to develop and produce clean technology

Think the government should do more to deal with climate change? You're not alone – so do most Americans, according to a 2020 Pew poll.

With Biden in the White House and Democrats controlling Congress, plans to get moving on some form of a Green New Deal could finally emerge. The Texas blackout heightened the sense of urgency, and everybody's talking about upgrading the power grid, renewable energy, and what it will take to have a greener, cleaner future. Meanwhile, the climate change-denying political right is determined to crush any proposals before they have a chance.

Here's what you might not know: Players on Wall Street have been torpedoing our chances of averting environmental catastrophe for years. A group of billionaire financiers has made sure the companies the government must partner with to fight climate change are focused on one thing only – making these men (they all seem to be men) even richer. Instead of leading the world in climate change technology, firms like Apple, GE, and Intel have been pressured to become the personal piggy banks of powerful moneymen—known as hedge fund activists—who can't see beyond the next quarterly report.

These guys are blocking their fellow Americans from the chance to leave their kids a safe, sustainable world. That world will never materialize unless we understand what they are doing and stop them. Let's dive in.

Games hedge funds play

You may have heard the term "activist shareholders." These are people, usually hedge fund managers, who buy shares of a public company's stock and then demand that the company do whatever it takes to jack up their stock price. The hedge fund then quickly sells out—a move called "pump and dump."

People who did this used to be called "corporate raiders." They took over companies, fired people, played stock market games to swell the stock price, made a quick buck, and then split. Remember Gordon Gekko from Oliver Stone's movie, "Wall Street"? The main difference between the Lizard of Wall Street and today's hedge fund activist is that Gekko wasn't shy about his motives: "Greed is good." What has changed is that today's raiders don't typically gain control over target companies before they put the squeeze on. Instead, they make company execs do the squeezing or, when that doesn't work, fire them and replace them with ones that will.

The playbook of today's hedge fund activists looks like this: Buy a wad of shares of a company on the stock market. Then, line up the proxy votes of the managers of funds who let have hedgies manage pieces of their portfolio. Next, send a letter to the CEO of a target company demanding that he or she get busy pumping up the stock price. Hedge funds with deep pockets will spend millions making this happen – remember, their money comes from rich people or institutional investors like pensions and mutual funds who are seeking high yields. Occasionally hedgies will use their own money – those whose "war chests" have come from previous raids.

Activists will also fight proxy battles, launch publicity campaigns, or litigate to get a company to do their bidding. Some shout about what they're up to, others whisper behind the scenes. A lot of them talk about making the company more honest and accountable and so on, but this is mostly a smokescreen. Their influence always ends up pushing companies to gin up short-term profits by any means necessary – like laying off workers or diverting money from research and development in order to – you guessed it! – jack up the stock price and make them richer.

Carl Icahn, the infamous corporate raider of the '80s, pioneered this aggressive approach to "unlocking shareholder value" from companies he targeted. In plain English, this means figuring out how to rip money out of a company so that you can buy a superyacht.

Today, the number of activist campaigns has exploded: In 2019, they set a record in the number of companies targeted. As the Harvard Law School Forum on Corporate Governance put it, "No company is too large, too popular, too new or too successful" to fall prey to these predatory financiers.

What does this have to do with fighting climate change? A lot, it turns out.

The government can't just snap its fingers and make batteries for electric cars, renewable energy storage, and advanced computer chips (needed for everything). It has to partner with companies that have the deep know-how and the substantial resources to develop these complicated and cutting-edge technologies. The government looks to collaborate with companies that are the very best at what they do and will even subsidize them for the long-term goal of saving us from climate disaster. Economist Matt Hopkins, who studies business corporations, stresses that as a taxpayer, you are asked to support such companies not only in the form of direct subsidies, but also indirectly through government-supported research. Not to mention all sorts of tax credits that drive nascent markets for clean technologies.

"The government supports all the industries in the clean tech space, one way or another, to the tune of billions," Hopkins notes.

The problem is, activists usually aren't interested in companies being the best at what they do, or doing anything, really, except handing over money to shareholders. A favorite tactic is to force companies to use their cash, or even borrow it, to buy back outstanding shares of their own stock. This neat Wall Street trick reduces the total number of shares available, so it boosts the value of the shares that remain. Presto! The hedgies holding the shares have just made easy money because their shares are now worth more and can be sold at a hefty gain.

Economist William Lazonick, who has written extensively on how businesses do business, explains that this becomes a big problem when we need innovative companies to make stuff we all need. "Companies grow and do things like create new technology, not because of stock market games," he explains, "but because they develop their capabilities and invest in their people. And they can't do this when hedge fund managers are calling all the shots and telling them to direct all the profits to shareholders."

Unfortunately, in the U.S., there is a widespread and very stupid idea — no less a person than Jack Welch, the former head of GE, called it "the dumbest idea in the world" — that it's ok for people who do nothing but buy and sell shares of a company's stock to boss it around and pocket all its profits. It really makes no sense, but it permeates American business schools.

As you will see, the shareholder value ideology is wreaking havoc on our climate future.

Let's look at how companies that could help us fight climate change have been attacked by activist investors.

Carl Icahn and a rotting Apple

In 2013, Carl Icahn, one of the wealthiest men in America, started buying up Apple stock. Soon, he became one of the company's biggest individual shareholders, owning one percent of Apple's outstanding shares. Now, one percent is a lot of money in dollar terms — Icahn paid $3.6 billion for his Apple stake. But why should he get to order Apple around just for buying and selling shares? Yet, that's just what Icahn did. The Wall Street honcho used his public platform to convince other people to buy shares, thereby pumping up the stock price, and he pressured the company to get busy doing stock buybacks through his letters and prolific tweets.

Lazonick explains that Icahn's goal was to pump up Apple's stock price to double its value, and then dump it. He would force Apple to use its billions in profits to enrich shareholders through massive stock buybacks instead of using them to invest in our renewable future. Icahn hoped that Apple would make a fortune on watches — and today it does a decent business in wearables — but he wasn't interested in other business opportunities, like, say, software to drive renewable energy smart grids or even electric vehicles.

As Lazonick put it in a letter to Apple CEO Tim Cook, "It's a travesty for Apple to throw away tens of billions of dollars on buybacks when it has the knowledge and power to contribute to the solution of a plethora of social ills."

On October 1, 2013, Icahn tweeted: "Had a cordial dinner with Tim last night. We pushed hard for a 150 billion buyback…"

When you're a multibillionaire, this works: Cook did the largest buybacks in history in 2014 and 2015. Then, in 2016, Icahn took the money he had extracted— $2 billion to be precise — and ran, leaving Cook with an Apple in danger of rotting.

Lazonick points out that given Apple's capabilities, it should be "right in the thick" of any Green New Deal that might be on the table, noting that Steve Jobs had once talked about leading the world on initiatives like electric vehicles. "Apple could be doing that right now, making electric cars, making batteries and all kinds of things critical to fighting climate change," says Lazonick. "It has tremendous capabilities, it's still hugely profitable, and its products are used and loved by millions of people."

Instead, the company is sidelined in the climate challenge. Lazonick points out that since 2013, Apple has done over $400 billion in stock buybacks—a staggering sum that is unprecedented. As Icahn was bailing out of Apple in the winter of 2016, multibillionaire Warren Buffett was using Berkshire Hathaway money to eventually purchase $36 billion in Apple's outstanding stock. Buffet has been cheerleading Apple's record-setting buybacks ever since.

For his part, Icahn went on to buy a couple of Trump casinos, donate tons of money to the Donald and even served as an economic advisor to the former president.

But wait, isn't there anybody who could push the company in a better direction? Al Gore, Mr. Climate himself, joined Apple's board in 2003, just a few years before he released his famous documentary, "An Inconvenient Truth."

In Lazonick's view, the man you would expect to be a champion of Apple's forays into green technology has become part of the problem: "He has overseen the looting of Apple to the tune of $403 billion in buybacks since 2013 (on top of more than $100 billion in dividends) without a public word of dissent. He is one of only seven people on Apple's board, but shareholders like Icahn and Buffett, who have not invested a penny in Apple's productive capabilities, are, apparently, still telling Tim Cook what to do. Board members fear that if they object to things like stock buybacks to prop up the stock prices, then the hedge fund activists will unleash a giant proxy war and kick them out."

So, rather than a leader on climate change, Apple is a laggard. As Greg Petro of Forbes noted, the company just isn't innovative at its core anymore. Thanks, Carl Icahn! And you, too, Warren Buffett! (And can we hear from you, Al Gore?)

Nelson Peltz ushers in dark ages at GE

General Electric has been around since Edison set up his lab in Menlo Park, New Jersey in 1876.

Today, the long-admired company produces electric power systems, jet engines, and most of the wind turbines in the U.S. "There's really no other company like it when it comes to the capacity and potential to produce renewable energy technology," notes Lazonick.

It ought to be a no-brainer that this iconic firm would be a leader on climate change, and not so long ago, it appeared to be headed in that direction.

Then, Nelson Peltz came along.

The name Nelson Peltz may not be as familiar as that of Carl Icahn, but he's a big wheel on Wall Street. Peltz is the billionaire founder of the investment firm Trian Partners, known for a lifestyle so opulent that he owns not one but two private jets and a mansion (one of several) with an indoor hockey rink. And some albino peacocks.

At Wendy's, where Peltz owns 12.4 percent of the shares, he has profited from not only paying low wages to Wendy's direct fast-food employees but also by screwing farmworkers out of decent wages and subjecting them to unsafe conditions. Peltz, a big fan of nepotism, is the board chair at Wendy's and has also given his son Matthew a seat on the board. He is also a loyal supporter and lavish funder of his friend, Donald Trump.

In 2015, Trian took a $2.4 billion stock position in GE—equal to about 0.09% of GE's outstanding stock. GE had a long history of being shareholder orientated. Besides ample dividends, it was among the largest repurchasers of its own stock in the two decades before Peltz bought his stake. Nevertheless, at the same time, longstanding CEO Jeffrey Immelt was keen on investing in technology and renewables that would pay off in the future. He had actually invited Peltz to support these and other plans for GE as a shareholder.

But Peltz didn't want to wait around. So, he pressured Immelt to cut expenses, hit more ambitious earnings targets, and do even bigger stock buybacks. In 2016, GE did $22 billion in buybacks, "all for the purpose of boosting the stock price so Nelson Peltz could achieve his goal of doubling his money when he was ready to sell his shares," Lazonick observes. GE also continued to increase its dividend payouts.

Unfortunately, GE could not sustain these distributions to shareholders and invest in its businesses at the same time. "The stock price went into the toilet," explains Lazonick. "Peltz has lost a lot of money and has helped destroy the company, or at least set it back in terms of its ability to invest in the technologies of the future."

In 2017, Trian orchestrated the ouster of Immelt, replacing him with John Flannery, a veteran GE finance guy, in August. In October, Peltz installed a son-in-law, Ed Garden, on GE's board. When Flannery could not engineer a stock-price recovery, he was fired, too, replaced in October 2018 by Larry Culp, who remains GE's CEO.

Today, GE is struggling to stay alive and is selling off pieces of itself instead of investing in climate change-fighting batteries or other renewable-energy technologies.

"GE had the best researchers and the ability to hire the best employees, but has missed windows of opportunity to be a leader in fighting climate change," says Lazonick. "All because a guy with a lot of money — in this case, money from pension funds, endowments and wealthy investors — was allowed to tell it what to do."

Dan Loeb chips away at Intel

The Intel corporation, situated in Santa Clara, California, designs and manufactures semiconductor chips. You need semiconductors for just about anything — especially anything connected to clean technology. A sustainable future requires more efficient computing systems to manage sophisticated clean energy grids and reduce power consumption while doing it.

The Taiwanese are the leaders in the highly capital intensive and technologically dynamic fabrication segment of the semiconductor industry. Besides its leadership in the design of processors, Intel was the pioneer in chip fabrication and remains one of the few companies in the world that manufactures the chips that it also designs.

So far, the company has been profitable, but its costs a ton to manufacture chips, so Intel has been making capital investments of $15 billion per year and rising, trying to stay at the technological forefront of chip fabrication. But it's no longer a leader in this area, perhaps because its senior executives have been distracted. Besides its huge investments in chip fabs, Intel also did $11 billion in buybacks in 2018 and $15 billion in 2019, trying to keep the activist predators at bay. When it determined to use a large portion of its cash to upgrade its fabrication capabilities, the hedgies complained of "waste." They wanted more buybacks.

Enter billionaire Daniel Loeb. Loeb is the founder and chief executive of Third Point, a New York-based hedge fund. He's quite a character, fancying himself a literary man and writing scathing letters to CEOs, presumably in between his Transcendental Meditation sessions (TM is beloved by Wall Street, perhaps because it is a very expensive way to learn to say a mantra). He's also a big art collector, having become smitten in college upon beholding Poussin's "Rape of the Sabine Women." His great-aunt invented the Barbie doll and ran Mattel until she was convicted of securities fraud. Whoops!

In 2020, Dan Loeb set his sights on Intel, purchasing a bit less than half a percent of the company's total shares through Third Point. Then he started pushing for changes at the chip giant, sending a nastygram to Intel Chairman Omar Ishrak. Loeb urged the company to split off its chip manufacturing operations from its chip design, despite the fact that Intel's roots in making chips instead of outsourcing them had made it stand out from rivals. This move, the Wall Street Journal noted, "would end Intel's long-held status as America's leading integrated semiconductor maker."

Right now there is a global chip shortage, and Intel's chips are sorely needed in myriad products. But Loeb is also pushing Intel to do more buybacks—it did $14.2 billion in 2020 along with $5.6 billion in dividends, absorbing 92% of Intel's net income. Intel could potentially receive subsidies from the Biden administration it had asked for in order to keep fabricating chips. But you can't do escalating buybacks and invest in cutting-edge chip manufacturing at the same time.

So, Intel may lose its chance, all for the sake of Loeb wanting it to play Wall Street casino games and maybe buy another waterfront home.

In 2017, after Trump was elected president, Loeb cheered him for reviving activist investing.

Lazonick thinks this story could end in Intel being bought by a Taiwanese company—quite possibly the world leader TSMC. "This has huge geopolitical implications," he warns. "Do you really want Taiwan having almost complete control of the U.S.'s computer chip supply?"

Bottom line: Whether it's Apple, GE, or Intel, or any other number of companies, that could potentially be mobilized for a Green New Deal, they can't do it while being held hostage by hedge fund activists looking for quick and easy money. Because they are irreplaceable in their capacities, knowledge-base, and talent, it means that the U.S. is severely hampered from being a climate change leader on the world stage.

"Predators like Carl Icahn, Nelson Peltz, and Daniel Loeb are the new Koch brothers," says Lazonick. "By holding these companies hostage, they are scuttling the opportunity for a Green New Deal. They are playing manipulative Wall Street games with our future."

What to do?

Now that we understand the activist predator problem, what is the solution? Meaningful plans to fight climate change require money – though they cost less in terms of resources and human misery than what's coming if we don't act. Nevertheless, as taxpayers we want our money spent wisely. If a company is going to get special status and funding in a Green New Deal, then we'd rather not see our hard-earned cash ending up funding a party for Donald Trump or exotic birds for Nelson Peltz.

Lazonick recommends that if the government wants to partner with a company to develop and produce climate change-fighting technology, the following rules should apply:

1. Ban stock buybacks: Prohibit large corporations from buying their own stock through open market repurchases. Buybacks are just a manipulation of the stock market.

2. Limit the hedge fund activists: Don't let hedgies control proxy votes of the company that enable them to threaten top executives, even though they only hold a small fraction of the company's shares. (For more on this, see Lazonick's book, Predatory Value Extraction, co-authored with Jang-Sup Shin).

3. Protect U.S. taxpayers and workers: Place stakeholder representatives on corporate boards.

4. Change incentives for company insiders: Reward senior executives for building up capabilities and new technologies and training employees rather than playing stock market games.

5. Set up oversight procedures: Scrutinize companies so that you know subsidies are going into actual productive investments rather than into the pockets of corporate executives and hedge fund activists.

America can have a Green New Deal. But first we have to free corporations from the predations of hedge fund activists who are mainly interested in the kind of green that fills their pockets.

Long before the virus, many Americans were sinking under waves of despair. Without transformative policies, that despair, with the added fuel of the pandemic, may turn into a tsunami. The aftermath could leave communities under rubble for decades to come.

Just in the 21st century, Americans have been threatened by everything from foreign and domestic terrorism to an increasingly aggressive and militarized police. Unable to count on jobs, adequate safety nets, or health care, they have watched the affluent make a killing on Wall Street. They have been spoken down to by politicians and the media, sensing that unless they are rich, the political system will ignore their voices. As research has shown time and time again, they were right.

Accused of being bitterly divided, when Americans agreed on something, like a single national program to provide health care coverage run by the government, their preferences were dismissed by their representatives (including the new president) as radical or impossible. Things that make life worthwhile and bearable, like an affordable education or a dignified retirement, grew increasingly out of reach. The middle class was turning into a relic. The people watched America devolve into what looked like a third-world country, with two separate economies in which experiences, prospects and even life spans diverged.

Life expectancy in America dipped for the first time in decades in 2015. Experts hoped it was a fluke. It wasn't. It happened again in 2016. And again in 2017. Not since the Spanish flu had such a decline lasted so long. Many suspected economic inequality was a driving factor, noting that while poor and middle-class Americans were dying younger, the richest were not only living it up, but living longer. A recent Danish study shows that from 2001 to 2014, the life expectancies of wealthy Americans grew 140% faster than those in low-income groups – an outlier among nations.

Deaths of Despair

In a 2015 study, Princeton economists Anne Case and Angus Deaton sounded the alarm about midlife white men and women without college degrees dying by suicide, drug overdoses, and alcohol-related ailments at record rates. People in these groups reported feeling sicker, more stressed-out, more prone to chronic pain, and less able to work and cope with daily activities. While their incomes were higher than Hispanics and African-Americans without college degrees, these whites felt a sense of chronic loss.

Case and Deaton termed the trend "deaths of despair" – what happens when you can't get ahead no matter what you do. In a book released in March 2020, they named America's greed-driven opioid epidemic, job instability, a predatory health care system, shredded social safety nets, unbalanced labor markets, and globalization policies as factors contributing to the tragedy. The United States stood out among nations for its inequities.

Before the pandemic, sociologist Shannon Monnat of Syracuse University was tracking deaths of despair by drug overdose, especially those linked to the opioid scourge. She concluded that while Big Pharma behaved horribly in pushing drugs it knew to be highly addictive, opioids would not have seized communities in a death-grip without the growing gap between haves and have-nots. Policies had an impact on mortality, blocking access to medical care and failing to promote decent, secure employment. Inequality was killing people.

Her research, focused on whites (the group with the highest drug mortality rates over the last two decades, other than American Indians), showed a pattern of people dropping like flies in both cities and distressed rural communities that relied on disappearing manufacturing and mining jobs, as well as lower-paid, more insecure service industry employment. She found that misery in those places didn't just happen. It was stoked by politicians who refused to address jobs or health care or safety nets. When the pharma reps came to town, they found a worn-out population ripe for exploitation. Monnat saw that in communities with more economic stability, a strong social safety net, and better quality jobs, fewer people were dying from opioids.

Monnat is now working with a team conducting field research on how the coronavirus pandemic is impacting populations of drug users in New York state. What she is finding has her worried about the growing contagion of despair.

Overdose Deaths Surge

The Centers for Disease Control (CDC) has already reported a rise in overdose deaths in the U.S. during the COVID-19 crisis, with synthetic opioids fingered as the primary culprit. Monnat notes that the reason for the increase is not yet clear. While isolation and loneliness due to the shutdown may certainly play a role, she also considers the decreased ability of people with addiction to access in-person treatment and recovery programs, the challenges of telemedicine, and changes to treatment protocols.

Monnat also noted that, "the supply chain for drugs, just like the supply chain for toilet paper, has been significantly interrupted by COVID-19, causing further chaos." For example, the United Nations Office on Drug and Crime reports a decline in the international production of heroin and disruptions to its distribution due to factors like reduced air travel and border scrutiny. This has brought to the drug scene more fentanyl, a synthetic opioid pain reliever which is 50 to 100 times stronger than morphine. Drug smugglers like fentanyl because it's cheap to transport: a small amount packs a powerful punch.

Monnat observes that fentanyl was already a huge problem before the pandemic and responsible for most drug overdose increases over the past three years. Now, the deadly substance is even more prevalent, often mixed in with other drugs as a filler and showing up not just in heroin supplies, but also in cocaine and methamphetamines. Some overdoses may result from people not knowing what they're getting. "Fentanyl is increasingly showing up in pressed pill format," says Monnat," so people think they're buying an Oxy on the street but it's actually a fentanyl pill."

Monnat's research on drug use currently focuses on upstate, central and western New York. With her team at Syracuse's Lerner Center for Public Health Promotion, she is asking people about their patterns of use and treatment experiences both before and after the pandemic, along with things like job and family stress and mental and emotional health. One change that concerns her is the possibility of more people using drugs alone during the shutdown, without a friend who could revive them if they overdose.

COVID-19 is likely altering the geography and demographics of drug overdoses, a picture that has shifted over the course of the pandemic. Early on, infection rates had a high impact in cities, but over time, the case and death rates have become higher in non-metro areas. "These are the places that missed the first bout but may not have taken adequate precautions," says Monnat. "I'm looking at counties where there are high numbers of people who tended to support Trump, who believe that the virus is a hoax, refuse to wear masks, and ignore social distancing mandates." Monnat's own home county in New York, Lewis, recently saw the highest 7-day case increase rate of any county in the state, a grim title it has held for the last two weeks.

Beyond the health impact of the pandemic, Monnat worries about communities suffering economically, especially in places that rely on tourism and recreation.

"There's distress in some of what used to be economically better-off areas," says Monnat. "They've missed summer and fall seasons, and now winter, with the skiing and snowmobiling. We're now looking at Great Recession-type effects in those places, or even worse. Of course, some of these places never fully came back from the recession in the first place."

Drug fatalities before the pandemic tended to cluster more in areas linked to manufacturing or mining, but Monnat sees the recreation and tourism-dependent areas, along with service-dependent communities, as particularly vulnerable now. She points out that it's too early to know if deaths of despair are already occurring more in those areas because death data are not yet available at the regional or county level, but she expects to see geographic shifts, and demographic changes, too. "There will be a lot of factors to unravel," she explains. "People who would have moved to tourist areas for a season are not going to have moved there, so you might have a whole different demographic profile than you would have seen otherwise."

Monnat stresses that deaths of despair don't affect all groups equally, but notes that since 1990, drug overdose is the only cause of death that has risen across every age group, race, ethnicity, and both sexes. "The rates of overdose were already increasing among Blacks before the pandemic," says Monnat. "Mostly it was because of increased fentanyl exposure, especially among the older Black men who saw their once-reliable drug supply increasingly contaminated with fentanyl."

The despair of COVID-19 is not a new despair, necessarily, but something that has been brewing for decades. The once-emerging Black middle class has been decimated by the loss of unionized jobs, creating economic hardship and downward mobility. Monnat points out that inner city areas with large Black populations had been devastated long before now, and the pandemic has only made things worse. "What has changed is that fentanyl is more prevalent, and it's increasingly deadly" says Monnat. "With the pandemic disrupting the drug supply, the user community, treatment providers, and even harm reduction availability like syringe exchange, user populations are more vulnerable than ever."

Breakdowns on race and gender on drug overdose during the pandemic are not yet available, but Monnat is especially concerned about one group — mothers. The CDC has reported that drinking was already on the rise among women before the pandemic and that the uptick coincided with the Great Recession. A report by JAMA Network Open has revealed that the pandemic has accelerated that trend. Alcohol use is linked to both suicide and drug overdose and raises the possibility of fatality.

"There's so much added stress on mothers with school-age children, juggling work and caregiving," she warns. "You've got the drinking, but women also have high prescription rates for anti-anxiety medication, like benzodiazepines, and when you mix them with alcohol, that can increase risk of overdose. Besides the risk of overdosing on drugs, there's also the risk of creating chronic health conditions from heavy drinking over a long period of time that we wouldn't necessarily see manifest themselves in deaths now. But we might be seeing this group of mothers 20 years from now having higher rates of liver cancer or cirrhosis."

Monnat says that while the opioid crisis particularly impacted working class whites, at least in the earliest waves, the damage of COVID-19 will be spread among more groups. "And it's not just the pandemic," she explains. "There's what I call the '2020 effect.' The year was stressful because of race relations and a president who seemed to be creating chaos at every opportunity. Even 9/11 didn't impact the country like this. Every time you turn on the news it's something new to worry about, some new crisis or problem. The anxiety is constant, and everyone is exhausted."

What are the remedies?

Monnat emphasizes that above all, widespread and quick vaccination has to be at the top of the agenda for preventing more deaths of despair. "In order to restart everything and get people back to their somewhat normal lives, they have to feel safe going out into the workplace, or to recreation and other consumption-based and activity-based places."

She notes that reopening schools would help mothers, who bear the brunt of kids being at home. "That's really part of the vaccination piece," says Monnat. "With new variants and added risk, schools have to have proper equipment and protocols, like testing regimes similar to what is done on college campuses. Here at Syracuse University, we have a good model with regular testing, reporting of the results, and wastewater testing. You need procedures that not only protect people from contracting the virus but also immediately mitigate when you have cases on campus."

Monnat also sees an infrastructure bill as an obvious win for everyone. "For five years now I've been saying we need a new deal for the 21st century. The New Deal was put into place in western Europe after WWII to rebuild after a war. We haven't been through an official war, but in a lot of communities it sure feels like the economic and infrastructural and social fabric decay is a lot like the experience of war. Certainly, post-Covid, it will feel like we've been through what amounts to a short war. An infrastructure bill would create jobs, help our falling-down infrastructure, and it has bipartisan support. That should happen right away."

Monnat warns that COVID-19 will cast a long shadow, not just over human health but in communities that are breaking down. "Trust in government, trust in media, trust in science, even trust in your own family have been strained," she says. "Families have been torn apart because of different willingness to accept facts. There are good stories, like people caring for each other and bringing each other food, but on a macro-social level, the pandemic has accelerated a disruption in the social fabric of communities."

Tears in America's economic and social fabric are likely to have negative implications for decades to come. "The impact will affect the political candidates that people get behind and support, people's willingness to help out their neighbors," says Monnat. "We didn't come together in the same way that we did after 9/11. That tragedy created divisions, but it feels like between the pandemic and Trump and the murdering of unarmed Black men by police, we've had a year of the magnification of political and cultural and social divisions."

Is America's current capitalist system, with its large concentration of wealth and worsening disparities, equipped to handle the potential tsunami of despair? Like a growing number of experts, Monnat's answer to that question is "no." In her view, taking on economic inequality is crucial, and depends on the Biden administration's willingness to push through an agenda that creates a more equitable tax structure. "You see with the pandemic that the very rich have gotten richer, so they can afford to pay their share of taxes," says Monnat. "Where else are you going to get money to dig out of this hole? You can't get any more money from lower and middle-income taxpayers. Even more so than the Great Recession, we've continued to redistribute wealth toward the wealthiest and the only way to mitigate that is to change the tax structure."

The writing appears to be on the wall: Only a serious reform of American capitalism can address the kind of distress and insecurity so severe that it kills. Is the country ready for this critical shot in the arm?