Can economics fight fascism? With Isabella Weber

0:00The price of bread has a long history of causing political trouble. This week, Americans went to the polls and concerns over the cost of living led to a landslide for Democrats. Meanwhile, across much of Europe, people are protesting against the cost of pretty much everything. Economist Isabella Weber thinks that there's something much bigger at stake than just household budgets, important as they are. She argues that making life's essentials affordable is good economics, but it could also be critical to protecting democracy itself. She has written a book that's just come out called Anti-Fascist Economics.

0:39So can governments really keep fascism at bay by keeping prices down?

0:48This is The Economics Show with me, Martin Sanbu, standing in for Sumeya Keynes. And I'm pleased to say Isabella Weber is here to join us for this episode. Welcome, Isabella. Thank you so much for having me, Martin. Isabella, tell us, what is anti-fascist economics? So at its core, it argues that fascism finds a fertile ground when there is large-scale economic insecurity and high levels of corporate concentration and private power in the economy. So an anti-fascist economics is one that puts a floor under people's livelihoods and a ceiling on the concentration of private and corporate wealth.

1:25I think I first came across your work when a lot of other people did, which was back in 2021, as inflation was picking up, you came out with a proposal that we might want to consider price controls. And pretty much the entire economic establishment had a meltdown. It must have been a bit of an unpleasant experience for you, but would you just share with us what happened? Yeah. So, I mean, maybe it's worth being precise about what I proposed, because I think that was actually part of the contention. So when economists hear price controls, they often hear price freezes across the economy, which was not what I proposed.

2:04What I argued was that in the 1940s, actually coming out of the war, a similar kind of inflation erupted, which was an inflation in response to bottlenecks in important sectors and strong demand on the consumer side because we were coming out of the war economy in the United States. And back then, economists across schools of thought actually argued that if in such a situation where supply isn't adjusting because there is retooling from producing tanks to producing fridges, which takes time, actually means that prices will shoot up, generate windfall profits, increase in profit margins, and absorb some of the savings that people had acquired during the war, which would reside in a very unfair situation because they had been going through the sacrifice of the war.

2:55And to prevent this kind of an outcome, it would make sense to impose temporary emergency price controls for the sectors that are both important and bottlenecked. And so what's the analogy with 2022? Yeah, thank you. So this was late 2021. But the analogy is that coming out of COVID, we were actually coming out of a situation where due to the shutdowns, the government had suddenly decided who could go to work, who could not go to work, which factories were kept open, which weren't, what was essential and what wasn't. And all of this was happening in an uncoordinated fashion across governments in a globalized production network.

3:36network. So the result of this was bottlenecks. And as the shutdowns were lifted, there was also a lot of purchasing power in the economy. People had also saved during COVID. So as such, you know, the constellation was very similar. People were also coming out of a moment of quite intense sacrifice during the pandemic. So Isabella, tell us briefly what precisely you proposed and why so many economists disliked it? Yeah, I mean, at the time, we already had the Biden Supply Chain Task Force that was looking at supply chain issues in a quite granular way. And at the bottom of it, I was proposing that it wasn't enough to look at the supply side.

4:19The Supply Chain Task Force should also look at the price side of things. And in that spirit, we needed emergency price controls for the stuff that is bottlenecked And that is essential for either people's livelihoods or for the working of industry at large. The reasoning behind that is to say that when there is a massive traffic jam in the port of LA, and at the same time, freight rates are increasing five, six, seven, eight times over, which was the case at the time, then the companies that are running this sector don't have a lot of incentive to get out of a situation that is yielding them record profits.

4:59I mean, literally record profits in the very long histories of these shipping companies. And that in such a situation, imposing a price control, a price ceiling that would still involve higher prices than before the crisis, but that would not allow these price explosions, would actually not be against a supply reaction because in fact, the supply shortage was part of what created the record profits in the first instance. And that goes straight up against the ways in which most economists think about prices. Like, I mean, we all have, of course, much more complex models. But if you wake an economist up in the middle of the night and ask them, you know, how do you think about prices, they would probably respond with the supply-demand diagram, where the idea is that, you know, if prices go up, supply adjusts, and that's how you rebalance the market.

5:55Now, what this diagram is not looking at is power in a sector, right? I mean, everybody's a price taker in this diagram. There's also no consideration of profits because we assume that because everybody is a price taker, there are basically zero economic profits, right? So these kind of dynamics that I just sketch out based on the example of the Port of LA, where in a real perversion, you get price explosions that actually create an incentive to not overcome the shortage, cannot be represented with a supply demand diagram. So therefore, you know, the gut reaction was like, oh, she didn't even study the supply demand diagram, where I was really talking about an important special case.

6:36And of course, I mean, everyone who studied economics has also or should also have seen diagrams of market power, monopoly situations and so on, where companies gain more profit by restricting supply. So I remember being a bit puzzled. One may agree with you or disagree with you, but clearly there's an argument that could be made for your case. And somehow nobody wanted to listen. Well, you know, actually going through this episode, I did spend some time looking at research on the economics profession. And I was struck by finding quite substantive literature on sexism in the economics profession, on major biases and the ways in which economists treat statements, whether they are attributed to heterodox economists or to mainstream sources.

7:22So I think part of what was getting at me was that as a young female assistant professor who had previously worked on China, I was not supposed to ask a question that goes to the core of how we think about the economy writ large. Well, we're glad that you persisted. And I mean, the work you did then you have continued with and it's ended up being in this book in a much broader sense. So, you know, you started out thinking about price controls in specific sectors to deal with the effects of bottlenecks. And you have kind of built onto this a whole argument about the cost of living in not just an economic sense, but a political sense.

8:06So what is the essence of the bigger argument you're making now? Yeah, so the book actually also starts with the social media moment, namely the night that Donald Trump was reelected, when I posted after, you know, watching the results coming in, seeing the map turning ever more red, can we now finally have a serious conversation about anti-fascist economics? And this really was kind of a gut reaction that was harnessed over the years of the inflation debates, where the question of what our economic policy advice is doing to democracy was not even part of the conversation, where at the same time, I thought it was very clear that we were at a moment where the threat of the rise of the extreme right was already obvious.

8:52I mean, it was already a global phenomenon. It was pretty clear that if the Democrats were going to lose, that Trump would come back and he would come back prepared this time. Now, more broadly speaking, I think that we have had this contradiction of telling people on the one hand that democracy is the best way of organizing the political system. And on the other hand, that democratic representatives unfortunately cannot do much when it comes to the question of even people's basic needs. In fact, that if governments intervene in trying to make things better, fighting unemployment, tackling the cost of living crisis, and so on, they actually end up making things worse.

9:38I think there's like this idea of state intervention just leading into a downward spiral of interventions that end up making things worse is key to the free market paradigm that we have been emerging out of. And as things have been becoming worse for a lot of people, this has, I think, eroded trust in democracy because people look at the system and say, it's not working for me. The status quo is becoming unbearable. Yet all the things that seem obvious that the government could do are not happening. And to overcome this crisis of trust in democracy, I think we basically need a new paradigm of economic policymaking that gets over this gut reaction against government interventions, which is precisely the kind of gut reaction that I experienced in the hate storm that came my way when I revisited this intellectual history of the 1940s.

10:37And it turns out that the 40s actually was a very different moment when it comes to the relationship of economics and democracy, because the question of how economics can contribute to never again was a paramount question coming out of looking at the experience of fascism and its relationship with the great economic crisis of the 1930s. No, exactly. Most economists at the time were convinced that laissez-faire in the 20s and 30s had led to the sort of suffering that then led to the arrival in power of a dictatorial movement of the extreme right, maybe in some countries of the extreme left. Now, when I read your book, I was wondering whether this is mostly about the US.

11:22You live in the US, a lot of it sounds like it's about the US. But of course, in Europe, we have a more interventionist system in general and quite a lot of variety between countries. I mean, if we take a country like France, for example, there's a lot of state intervention in the economy. And yet the far right seems to be doing very well there too. So how do you account for a place like France? Yeah, it's interesting. I've also been getting this question in Germany. And I mean, the first part of my answer is we should not underestimate the power of the US state. I think that the US state actually still wields a lot of power.

11:57If you look, for example, at the U.S. Department of Agriculture, if you look at what's happening with the mail service, which has not been privatized in the U.S., but has been privatized in many European countries. So I'm not saying the U.S. is the example that we should be pursuing, but I'm just saying that once you look sectorally, the picture actually becomes quite mixed. Now, what I am arguing for is not simply an expansion of the welfare state. I am arguing for greater public control over the essential sectors so that these sectors are managed in the interest of the public. What is the difference here?

12:33You know, you can have an expansion of social welfare spending to have more generous support for people to pay rent, for example. But as they are paying rent, they are paying rent to private landlords and are at the end of the day generating private revenues and you are using public money to pay private returns. What I'm suggesting is that we should be using public money in a much more intentional fashion to rebuild public capacities, to build the kind of housing stock that we need to build and to build it green because we are in the middle of a climate crisis. So this might not necessarily involve more fiscal spending than what we are already doing, but it means a different kind of fiscal spending.

13:19And I think in that sense, there has been a pretty far-ranging change in the European context too. And that change actually has been one that at times came at pretty high fiscal costs because now the state no longer owned public assets. And when you were in these crises of provisioning of essentials and the prices shot up and you had to pay social benefits that were inflation adjusted, that actually ended up being quite expensive. Let's talk a little bit about the U.S. as well, both politically and economically. You're calling for a greater public or state role in, I think, the provision or at least the assurance that essentials are available and affordable to people.

14:03I mean, didn't Bidenomics move quite far in this direction in contrast with a lot of the earlier economic policy thinking in the US? I mean, Biden moved very far in his rhetoric, right? I mean, he was very explicit that he wanted an end to trickle down economics. He moved quite far when it comes to the question of industrial policy, of, you know, regaining competitiveness, mainly focused on competitiveness with China in key sectors. But he did not move very far in the direction of recreating state capacity. And he did not dare to address the affordability crisis heads on. In fact, there was this moment in his last State of the Union address where Biden comes around to stating very explicitly that there was a relationship between profits and inflation and that the concentration of corporate power was part of the problem of the affordability crisis.

14:59He even had this like Super Bowl ad where he's calling out shrinkflation and, you know, showing smaller packages of the same product that used to be sold at lower prices when they were in larger packages. But he never moved beyond calling it out. Now, if the president of the United States, the most powerful politician in the world, is calling out a problem and is literally saying in the middle of a crisis where food insecurity is going up and an increasing number of Americans are struggling to pay for food. Meanwhile, the profits in the relevant sectors are going up and yet I'm not doing anything about it.

15:41It's almost worse than not naming the problem. Then we had Kamala Harris's campaign, which started out with a programmatic speech in economic policy where her signature intervention was supposed to be a federal price gouging ban on food. A price gouging ban is not a price control, right? If a price control is a bit like the functioning of these scooters that you can rent in many cities that have a speed limit, right? You can only go as fast as you can go. Then a price gouging ban is your regular speed limit in the street, where with your car, you can go faster than the speed limit, but you might be policed for breaking the speed limit.

16:20So that's the logic of the price gouging ban, right? And the reaction from economists was actually somewhat similar to what I had experienced in the 2021 storm, just that this was now on the scale of a presidential campaign. Corporate interests also did not like the idea of strengthening price gouging regulations. And the result was that even though focus groups showed that this was by far the most popular message that she had. Harris deprioritized this message and just stopped talking about it. And that, I think, shows us that A, she retreated from the idea that the government has to do something about affordability.

17:04And B, she retreated from the idea that despite, you know, walking around and talking about her credentials as attorney and so on, the state was not out there to hold companies accountable that are price gouging in an emergency situation on food, the stuff that literally every human life depends on. Just to be clear, you think that if she had held on to a more interventionist message, she would have done better? She might have won. That's not just what I think. I think this is by now like a pretty mainstream interpretation that basically Harris lost over inflation and that the idea of prioritizing that people just didn't have the right feelings about the economy and that one had to get the message across that the macroeconomy was actually doing great, that this ended up being a dead end electorally.

17:53I think this is by now a pretty commonly accepted insight. And in fact, that leads us straight to the midterms, right? Where Democrats have been running on a very different approach. So, you know, in sharp contrast to what Harris did, they have been running on affordability and have been running on the message that the state is able to make life's essentials affordable, from healthcare to housing to energy. These have been the key campaign pledges. And the question now, of course, becomes, is this just messaging or are Democrats prepared to come up with a plan? And that brings us, of course, to the question of how do we actually do this?

18:36We're going to have to take a very short break. But when we come back, I'm going to ask you, Isabella, about what is the actual content of your economic proposals?

19:34And we are back. Isabella, I guess there's a chance now that newly elected politicians will ask you for advice if they really mean what they say about bringing down the cost of living. So I'd like you to talk us through a bit the sort of policies you want governments to pursue that you think will work. What do you cover in that catch-all term essentials? What are the things that government policy needs to make sure is affordable? Yeah, I mean, there are different ways of getting at the basket of essentials. One way is to do input-output modeling, which is something that we did, where we get at essentials for people's livelihoods and essentials for the industrial system.

20:15Another way of trying to understand what the essentials are is to talk to people and ask them, you know, what is it that you really need for your life? And the same applies to firms. And I think the answers that you get are pretty similar. So it's energy as one key essential. It's food. It's transportation. It's housing. It's care provisioning and it's access to commonly used forms of communication. So the question I want to ask, but I realize it's a bit of a difficult question to ask, I obviously want to ask, well, what are the policies that get us these low and stable prices? But you do say in the book that, of course, this depends on the sector and you have to go in and do the very concrete work.

20:57But is there something you can say as an overall approach? Maybe to give an example, probably the hardest one when it comes to price policies is food. Because it's essential, people depend on it. It's extremely heterogeneous. If you go to a supermarket, you'll find hundreds of different brands of even the same item and thousands of different items. So in that context, it can, of course, not be a measure where you just freeze all of these prices. But within food, we can identify baskets of food staples that households really depend on in terms of fulfilling their nutrition needs. Now, what the Mexican government did is to draw up an agreement with the large grocery companies that control the grocery sector and to have a commitment from them to keep the price of this basket of, in that case, 24 items as a whole stable.

21:55What this does is that you still have flexibility of relative price changes within this basket, but you keep the basket itself at a price point that is affordable in relationship to incomes. It also utilizes the fact that grocery sectors are incredibly concentrated in most countries. Most countries, it's literally one or maybe maximum two hands of companies that run the grocery sector. And when you have these large grocery conglomerates, they also tend to have store brands where they actually have a considerable degree of control over the supply chain. So this is an example of a measure that can be effective immediately and that brings immediate relief, but of course does not address the underlying structures.

22:46But what it does is to tell people that it's the government's job to make sure that the most basic food items are affordable to everybody. And Isabella, does this apply to the food producers? Does it apply to the shops? Where is the level at which the price cap is imposed? This price cap is at the level of the grocery stores themselves. But for basic items where they have store brands. So you will have heard this question before, I'm sure. Why is it better that the government steps in and says we have a responsibility for keeping the prices of these food staples below a certain level, as opposed to saying it's our responsibilities as a society to make sure that everyone can afford them.

23:35So like many countries do, we adjust benefits, for example, so that nobody is too poor to buy the basic staple foods. What is it that's more attractive for you in this more interventionist approach? Yeah, I mean, first of all, we are living in a time of overlapping emergencies. This is probably not the last shock that we are living through with the Iran war-induced energy crisis. Prices are bound to spike in response to climate shocks and extreme weather events. We are witnessing the disintegration of the institutions that used to keep our economies relatively stable. So in that sense, shocks are no longer a one-off event, but they are actually something that has become endogenous to the system that we are living in.

24:21Now, when the prices of essentials spike, it has immediate redistributive impacts. In the UK, for example, the bottom 50 % actually used to spend 49 % of their income in 2021-2022 on essentials with the basket broadly defined along the lines, as we have discussed. And in 2022, 2023, that shared jumped to 57%, even though people were cutting back in terms of what they were consuming. So even the consumption of food declined by 7%. But why is it worse to compensate them for those shocks rather than going in and keeping the prices low? I mean, first of all, if people keep going to work and do their job, and then the stuff that they can't do without becomes so expensive that they feel squeezed.

25:15And the next thing that happens is that they become dependent on government transfers. This does something with how they perceive their own integration into the economy. People don't like to be dependent on social benefits. They don't like the idea of, you know, doing their job, going to work, doing all they can. and then having to rely on a government check coming their way to be able to pay for something as basic as food. That's the first point. The second point is that when you rely on government transfers, you are putting all the liquidity pressure that comes from these price spikes on the balance sheets of those who are least prepared to absorb those shocks.

25:57So yes, there might be a government check coming eventually, But that government check might come a month or two or three months later because it takes time until it's issued. It takes time until it reaches you. This is important for households that are already cash strapped, that might already be depending on debt. A further reason is that with the kind of measures that I propose, you actually add to price stability. So you have a system that, you know, does not rely on hiking interest rates in response to food commodity price shocks or energy price shocks. Hiking interest rates is an extremely blunt instrument with very far ranging consequences, including for affordability.

26:41So we have had kind of this, you know, trifecta of an energy shock, which triggers a food price shock, and then triggers interest rate hikes, and then interest rate hikes triggering mortgage rates going up, and then mortgage rates going up actually deepening the housing affordability crisis, which means that, you know, instead of containing the affordability crisis that happens in the wake of a shock, you actually have a measure that makes it even worse. Okay. Well, I find some of those reasons more convincing than others. It seems to me that in terms of the cash transfer not being very well designed and so on, you could have the same objections to a price control system.

27:21That also could be ill-designed. But as you know, there is an argument that at some level, even if you are right, that there is a problem with these spikes for those who can't afford them, most economists will think that the price signal is a useful one, right? If we talk about power and electricity, for those who can actually live through an electricity spike, but can make some effort to shift their electricity consumption around, or who can afford to pay for more fuel, but if fuel gets really expensive temporarily, then they can maybe let the car sit and take public transport, or they can do carpooling with somebody.

27:59You know the arguments. You seem quite dismissive of the use of the price signal that most economists will say it actually helps, certainly in the long run. No, I'm not generally dismissive of the price signal. I am dismissive of the price signal when it comes to the most basic needs where people have very limited demand elasticity, where people have very limited ability to be free to choose. I mean, this idea that in a situation of crisis, prices can actually be an allocation mechanism that leads to large-scale misery is not one that I came up with, but Nobel laureate Amartya Sen comes up with in his famine theory, where he argues that famines can happen even in situations where there's not technically too little supply of food staples, but where prices explode in ways that erode affordability in ways that ends up leaving possibly significant shares of the population in hunger.

28:57And that is actually a very important theoretical reference point for me in developing the theories that I spell out in the book. But beyond that, in the middle of an energy crisis, of course, price signals should be operating. So therefore, what I proposed from the beginning on was a price cap for the base consumption and then market signals beyond that base consumption. And we should just tell listeners here that you were part of a formal advisory group for the German government. And in the end, they followed your advice, if I'm not mistaken. Yeah, we implemented something that followed the same principle of stabilizing the cost of basic consumption and then kept the market prices for the consumption beyond that intact.

29:38I also think that when it comes to the question of price signals, we have to distinguish between different types of markets. So in commodity type markets, prices work very differently from prices of processed, final, branded goods, right? I mean, spot market price are incredibly volatile and even a chaffron or an exom cannot set the price of oil. And in the commodity type sectors, I am a proponent of buffer stock systems, which is something that we have actually seen working in this energy crisis, right, where the International Energy Agency coordinated the release of government reserves. And where, in fact, China, which has the largest oil buffer stock system in the world, ended up being kind of the buffer stock of the world by limiting its imports quite drastically.

30:29So the idea there is that, you know, when supply is high and prices are low, the government buys and stores those goods. And when the price is high and supply is low, the government releases from its stocks. And by doing that, it actually helps balance the market and helps counteract volatility, which I think is the right instrument to use in volatile markets like spot markets. I think this is quite interesting because you're mostly known for price controls, but actually in the book, you talk about quite a menu of various tools to stabilize prices, which in this case is an intervention in the market selling and buying without actually directly controlling the price.

31:09I mean, I'm still unconvinced to some extent. I know that if we go back to the example of energy in the book, you lament the price spikes for natural gas in Europe in 2022. But we also know that those led to a permanent reduction in gas use of maybe 15-20 % in Europe. So the price signal worked. Are you not going too far in the direction of letting the more well-to-do among us off the hook? Well, that's why we have these non-linear schemes, right? To go back to the food basket, like the fraction in your consumption that you spent on the kind of basic food items that I'm envisioning here is probably extremely small, possibly even close to zero.

31:51So in that sense, you know, it is something that is really benefiting the larger share of the population that spent large shares of their income on these basic things. But one thing that is really important to me is that, I mean, as I said in the beginning, my vision is really about a combination of measures that can bring relief in the here and now and reestablish the ability of the government to act and achieve greater affordability in the short run. But at the same time, we need these structural transformation measures. Price stabilization measures by time, not more and not less, which buying time in the kind of emergencies that we are in is quite critical.

32:33But then everything depends on how well we use the time that we have bought. And we have to use it to increase supply where supply is lacking, to increase resilience where resilience is blacking and to restructure the economic provisioning to make it green and to decarbonize because that is the root cause of a lot of the crisis that we are looking at. Well, we need to wrap up. Tell us very briefly, what are the most promising laboratories at the moment for the sort of ideas you're proposing? Who is listening to you and trying to put this into practice? The most important one is, of course, New York City.

33:08We have seen that with the win of Soren Mamdani, affordability has become the central issue of the midterm campaigns. And as such, it has really had the impact of changing the economic policy debate that we have. In the UK, I think that Andy Burnham's speeches have resonated actually to a quite striking degree with some of the things that I'm writing in the book, including the reference to the 1940s, the demand to reclaim the essentials in the interest of the public. And there the big question is, will he have the courage to carry through with what it takes to make his ideas a reality? Isabel, can I ask you if Bonham has contacted you about it?

33:51Has he read the book? I don't know if he's read the book. Certainly listening to the speech at the Liverpool Labour Conference, it sounded like there's a lot of resonance between his thinking and my thinking. I have been consulted by number 10 on their 10-year plan in an expert roundtable. All right. So the book is getting read in high place for sure. I think Isabella has challenged us with two levels of ideas here, really. One is the top level big idea that actually the state, the government can give a much more active steer and direction to the economy than what we have been accustomed to thinking.

34:29And I think she's quite right about that. And then at the more specific level, a lot of ideas for what sort of tools governments could use. And there, there will naturally be a lot more debate about which tools are right and which are wrong. But that's precisely how it should be. So, Isabella, thank you so much for joining us. Thank you so much for having me and for giving space to this neurons discussion.

34:58you have been listening to the economics show if you enjoyed the show do rate us and review us wherever you listen it really helps spread the word this episode was produced by katya kumkova with original music and sound design from breen turner our executive producer is manuela saragossa and i'm martin sandu thanks for listening

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