Weird Left Finance Twitter

[Sheilbh]

Or can Wall Street and the American Left work together?

Wall Street has always been progressives' 'Big Bad.' But a new generation in the finance industry is starting to sound more like allies than enemies.
Alex Yablon , Opinion Contributor
Dec 6, 2020, 1:04 PM
    After decades of cheerleading for deficit reduction and lower government spending, Wall Street may be changing its tune.
    Leading investment figures are interested in heterodox economics ideas like Modern Monetary Theory.
    Younger analysts' experience of a weak recovery from the 2008 financial crisis have made many enthusiastic about fiscal stimulus and income redistribution as a means of jump-starting economic growth.
    Alex Yablon is a Brooklyn-based journalist who writes about politics and policy.
    This is an opinion column. The thoughts expressed are those of the author.

For as long as the current day American left has been around, it has had a very clear Big Bad: Wall Street.

From the initial eruption of Occupy Wall Street at Zuccotti Park in 2011 through Sen. Bernie Sanders' two presidential primary runs, the left has been animated by animus toward an ever more expansive and all-powerful financial sector. Wall Street, according to this narrative, is the enforcer of the neoliberal orthodoxy that is dedicated to austere budgets, punishing labor discipline, and supplicancy toward the market.

Yet over the past decade — and especially since the pandemic cratered the global economy — a funny thing has happened within the world of Big Money: a small but growing number of finance professionals have begun talking like leftists.

Indeed, now that Joe Biden is president-elect, investors could be coalition partners with the left in the push for deficit spending, fiscal stimulus, massive infrastructure projects, and increased welfare.

"Wall Street is screaming at the fiscal authorities to spill red ink," said former PIMCO managing director Paul McCulley, now a fellow at Cornell Law School and adjunct professor at Georgetown University's McDonough School of Business about the push for increased spending and acceptance of federal debt. "That's about as wholesale a paradigm shift as you can imagine. I can see a comfortable relationship between Wall Street and a more progressive Democratic agenda going forward."

Reckoning with the post-2008 world

Driving this huge shift on Wall Street is a fundamental reckoning with the failures of the past few decades of macroeconomic policy in the US.

For decades, mainstream Republicans and Democrats alike have sworn fealty to neoclassical economics. The neoclassical orthodoxy mandated public spending cuts to reduce deficits, rollbacks of labor protections, and ever greater freedom to move capital across international borders and into voguish new financial products.

This was all done in the name of conquering the rampant inflation of the 1960s and 1970s and thus restoring investor confidence, leading to more innovation, jobs, and economic growth. But the fruits of this economic program were soaring income inequality, repeated financial bubbles, slowing employment and wage growth, and rising costs of healthcare, housing and education. Investors, meanwhile, mostly haven't put their returns back into job-creating businesses: instead, they have parked mind-boggling amounts of cash in speculative financial assets and overseas tax havens.

At the same time, periodic expansions of the federal deficit (the War on Terror, the Bush tax cuts, the post-2008 bank bailouts and stimulus, the Trump tax cuts, the CARES act) have not yielded the nightmares of inflation and soaring interest rates that neoliberals have long insisted were inevitable. In fact there's no sign of inflation, and interest rates are so low the federal government can practically borrow for free.

As the fundamentals of the country's economic policy have been exposed as mistaken, heterodox economic ideas have cropped up to offer alternative ways of thinking.

For instance, Modern Monetary Theory (MMT) — a theory that the federal government always creates new money when it spends, and doesn't actually pay for fiscal policy with taxes, which just take money out of the economy — has been embraced by left-wing politicians like Sanders and Rep. Alexandria Ocasio-Cortez as a means of financing left wing goals like a Green New Deal.

Even more fascinating than the political uptake, the theory has insinuated itself into the discourse among finance professionals. Many Wall Streeters and finance types have started to point to MMT as a more accurate explanation for macroeconomic trends than the neoclassical economic tradition, even as MMT has been greeted skeptically by the academic mainstream.

McCulley is one of the most prominent investment luminaries to call for a wholesale rejection of the austerian worldview that has reigned in finance for decades, though he's hardly the only one. Goldman Sachs' chief economist Jan Hatzius and Allianz economic advisor Mohamed El-Arian have both expressed interest in MMT.

Bob Jain, the former Credit Suisse managing director and current CIO of the gargantuan investment firm Millennium Management, has gone even further. The Jain Family Institute bankrolls research to support a fleet of progressive economic ideas such as Universal Basic Income, econometrics beyond GDP that take into account wealth distribution, and means of scoring the economic, social, and political impact of different investments.

JFI also publishes a website, Phenomenal World, focused on cutting edge social science, economics, and political economy with a distinctly left-wing perspective. Phenomenal World runs essays like one from July on the way the global dollar system buttresses American empire — the kind of thing one might expect to see published by socialist magazine Jacobin, not a hedge fund guy's personal think tank.

"Weird Left Finance Twitter"

Beyond more established names at big institutions, the left-wing political economic intellectual ferment has found an eager audience among a subset of younger financial analysts found online in a scene that might be called "Weird Left Finance Twitter."

A constellation of users on the social network — some anonymous, some not — developed cult followings for their oddball jokes about Jerome Powell, MMT, and which companies they're shorting. These like-minded observers share a similar perspective on the relationship between government spending and investing — namely, that they go together, and that austerity has harmed the economy.

These young analysts and economists coordinate through a network of group DMs, which one participant described as "the new Shadow Open Market Committee, like Brunner and Meltzer and the other right wing psychos had in the 70's."

One prominent figure in the left wing finance discourse, Alex Williams, a research analyst at Employ America who tweets as @tragicbios, said he has been in dialogue with more finance professionals than academic economists. Despite the industry's reputation, Williams has not been surprised that post-Keynesian economics has found a following among people who actually work on Wall Street, explaining that "the closer you get to the actual machinery, the more it matters your conceptual frame is right."

A trader developing a forecasting model based on faulty economic assumptions will suffer losses to their bottom line if they are wrong, while academics, especially prominent ones like Harvard austerian Kenneth Rogoff, remain insulated from consequences even when their errors are widely publicized.

As young hedge funder Naufal Sanaullah put it, "Macro guys trade this stuff and if our framework isn't working, it will hurt our [profit and loss]." He said that macro traders — those who trade based primarily on global economic conditions — regardless of their personal politics, get that old concerns about debt-to-GDP don't mean much in 2020, and that the federal government can spend plenty more than it does now.

In group chats, the members of this clique talk about economic theory and philosophy, with a particular fondness for Polish left-wing economist Michal Kalecki. Kalecki's profit equation showed that government deficits ultimately add to corporate profits — providing an economic boost and benefiting companies — rather than crowding out the private sector as many neoliberal economists have long claimed.

Unprompted, several who spoke for this story brought up Kalecki's famous essay, "Political Aspects of Full Employment," which argued that the owners of capital would prefer to sacrifice growing profits stemming from increased consumer purchasing power in order to maintain their position atop the social hierarchy and discipline among their workers, increasing the elites' slice of the economic pie rather than increasing overall output.

That's a radical break with recent orthodox economic and financial discourse, which maintained that more business- and investor-friendly policies would ultimately strengthen the economy and increase overall growth, with wealth trickling down to workers in the form of lower consumer costs and more jobs.

In fact, the turn in the investment discourse has been so pronounced that on one recent episode of the popular Bloomberg podcast Odd Lots, co-host Tracy Alloway remarked, "It's kind of funny how every investment discussion these days ends up touching on Marx."

The war on inflation was over-won

Wall Street was, of course, a major backer of the post-1970s turn toward neoclassical economics in service of whipping inflation, which perhaps not coincidentally kicked off an extraordinary decades-long bull market in asset prices. It's been a good run if you're in the business of trading assets.

Fear of inflation, pumped up by Wall Street figures like Robert Rubin, spooked earlier Democratic presidential administrations out of pursuing more muscular fiscal stimulus in times of economic strife.

The problem for investors now, however, is that the war on inflation has been "over-won," as McCulley said. If it makes more sense to hold onto cash and assets that seem to ceaselessly appreciate, then the financial sectors' clients won't actually do much investing in new businesses - they will just amass massive piles of savings, and it will get harder and harder to find investments that generate actual returns on those savings. Indeed right before the coronavirus pandemic hit, business investment had been falling for nearly a year straight.

Young analysts interviewed told a generational story: those who entered the field during the 1980s and 1990s were "playing on easy mode," said one anonymous hedge fund analyst, and may be loath to abandon the neoliberal ideology that pervaded finance during the sector's meteoric rise in those decades.

But "the younger generation is not as dug in," said the 30-something behind @VegaVandal, and "people who grasp the Keynesian argument are just better at their jobs." The evidence of the economic effects of post-2008 austerity has affected their thinking.

"There's a lot more intellectual flexibility on Wall Street today than when I entered the industry in 2012," said George Pearkes. "If you look at the way the economy has behaved for the past 20 years, you would have to completely ignore the data to say that deficits lead to higher interest rates and runaway inflation."

Practically speaking, how might Wall Street and the American left work together?

If the government wants to debt-finance major infrastructure projects or a green energy transition, financiers will be eager for a piece of the action. Pearkes pointed out that Australia is right now working on a $36 billion alternative energy project,, a bigger deal than the largest stock offering in history.

Sanaullah, meanwhile, pointed out that the greatest sources of inflation pressure in the economy today are things like housing, healthcare, childcare, and education — so policies that attack those rising costs like Medicare For All or a massive affordable housing program would have a huge stimulus effect on the private sector, since they would free up consumer spending otherwise sucked up by rent and insurance premiums.

Even more concretely, these new-thinking finance professionals are taking their ideas directly to the politicians who share their philosophy. Sanaullah doesn't just trade on the framework: he has worked on Ocasco-Cortez's campaigns and written fiscal policy memos for her office.

"I can assure you that Wall Street will be more than happy to be co-venturer with the fiscal authority. There will be a huge market in five years for infrastructure bonds," McCulley said. "Wall Street moves to where it can make money, it's that simple." After neoliberalism has run its course, "Wall Street needs a new game."

This is an opinion column. The thoughts expressed are those of the author(s).

[The Minsky Moment]

I don't see a lot of Wall Street names in that article and of the few that are there - like el-Arian - they aren't exactly MMT disciples.

If the point is to say there are folks on the Street that would welcome infrastructure spending that is true but hardly novel

[Crazy_Ivan80]

is the article trying to say that companies like to eat from the government trough?

if so, don't color me surprised. Which company would pass up a wealth transfer from the taxpayer to the share-owner?
and if -depending on the issue- you get free virtuepoints from (in the current timeframe) the left... Well what's not to like?

[Admiral Yi]

This article is kind of a mess.