A Single Federal Usury Cap is Too Blunt an Instrument

NB: This post is part of a debate on the Loan Shark Prevention Act, a bill that would introduce a federal usury cap. Emma Caterine’s response is here.

Anne Fleming–

In May 2019, Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez unveiled the Loan Shark Prevention Act, a bill that would cap the cost of consumer credit nationwide. Under the bill, the total cost of a loan, calculated as an annualized percentage rate (APR), could not exceed 15%.

Although high credit card charges are the bill’s main target, payday loans rank among the most expensive forms of consumer credit in the United States. A typical payday loan from a storefront lender costs $15 per $100 borrowed. For a $350 loan that must be repaid in one lump sum in two weeks, the borrower would pay $52.50 in fees. This equates to a 391% APR.

Payday lenders argue that it is misleading to calculate the cost of their products in terms of an APR because payday loans are not marketed for long-term use. But most borrowers cannot repay their loans in full in two weeks. Instead, they pay only the fee and rollover the balance into a new two-week loan. In this way, consumers can end up in a months-long cycle of borrowing, paying hundreds of dollars in fees. This vicious cycle is especially concerning because most borrowers are low-income, just making ends meet. Furthermore, Hispanic and African-American households account for a disproportionate share of payday loan users.

In other words, high-cost credit is a real concern that policymakers must address. But a one-size-fits-all 15% APR cap is a blunt instrument for tackling this problem.

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Is Labor’s Future in Labor’s Capital? A Debate, Part III

This is Part III of a conversation between David H. Webber and Michael McCarthy on the prospect of combating neoliberal corporate governance through the shareholder activities of workers’ pension funds. Workers’ retirement savings make up a substantial share of the capital invested in the public stock market and the private equity market. If shareholder primacy is the dominant paradigm of our financialized economy–-usually a problematic proposition in these pages–-then shouldn’t workers have a say in how these companies are run? Webber and McCarthy are both sympathetic to this idea, but disagree about how well such efforts have worked in the past and how likely they are to work in the future.

You can view the other parts of the debate here.

LPE: We now have several potential obstacles on the table. Let’s take a closer look at some of them. First, the legal obstacle—what does fiduciary law really require, and is this a problem for prioritizing something other than short term financial return in fund governance? Second, politics—what will it take for labor to demand a seat at the table, or a majority of the seats?

David H. Webber: Though I do not view current fiduciary law as an insurmountable barrier to the activism I describe, it could be better. ERISA comes from trust law, though the statute explicitly states one should be cautious in using trust law to interpret it. I have argued that, in many respects, the more flexible fiduciary duties found in trust law’s cousin, corporate law, may be a better fit for pension plans as they exist today than trust law itself. Historically, because shareholders were thought to be comparatively more empowered vis-à-vis corporate boards and managers than beneficiaries were vis-à-vis trustees, more flexible fiduciary duties evolved in the corporate sector.

But I think that in the case of many pension plans, these distinctions have broken down. First, public pension plans now make regular disclosures through Certified Annual Financial Reports, the pension law equivalent of the 10-K. Second, plan participants and beneficiaries get to vote for worker and retiree representatives on boards, and in their capacity as citizens, they also get to vote for the elected officials who serve as employer representatives on those boards. So there is a measure of accountability not found in traditional trusts. Third, on the corporate side, diversified shareholders have effectively lost their capacity to exit. Divesting is expensive, can often hurt you on the way out, and may undermine diversification. Many shareholders are locked in the same way pension beneficiaries are. It may be time for greater convergence between pension law and corporate law, one that takes account of the new institutional realities.

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Is Labor’s Future in Labor’s Capital? A Debate: Part II

This is Part II of a conversation between David H. Webber and Michael McCarthy on the prospect of combating neoliberal corporate governance through the shareholder activities of workers’ pension funds. Workers’ retirement savings make up a substantial share of the capital invested in the public stock market and the private equity market. If shareholder primacy is the dominant paradigm of our financialized economy–usually a problematic proposition in these pages–then shouldn’t workers have a say in how these companies are run?Webber and McCarthy are both sympathetic to this idea, but disagree about how well such efforts have worked in the past and how likely they are to work in the future.

You can view the other parts of the debate here.

David Webber: Though I think he somewhat overstates the case, I agree with Michael’s observation that these pensions have, at times, been used against labor. And not just historically. I discuss (and decry) contemporary examples of this phenomenon in my book, such as pension fund investment in privatization. And it is also true that both private and public sector pensions have been used in favor of labor, as my book demonstrates. Before digging into those issues, I want to clarify some important distinctions between the public and private fund context, respond to some of Michael’s claims about ERISA and fiduciary duty, and point to examples of why, regardless of what has occurred historically, things are changing and have the potential to change further, if acted upon.

First, Michael shifts the focus to private union pension plans. Fair enough. I discussed them above and I’ll return to them below. But the bulk of my discussion focused on public pension plans, and with good reason. In part that’s because they are far larger. The public pension funds of California alone significantly exceed the assets of all private union pension plans combined. But there’s another reason to focus on public pension plans: they are not governed by Taft-Hartley or by ERISA. They are governed by state pension codes. That matters for two issues: board control, and fiduciary duties.

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Is Labor’s Future in Labor’s Capital? A Debate

This is Part I of a conversation between David H. Webber and Michael McCarthy on the prospect of combating neoliberal corporate governance through the shareholder activities of workers’ pension funds. Workers’ retirement savings make up a substantial share of the capital invested in the public stock market and the private equity market. If shareholder primacy is the dominant paradigm of our financialized economy–usually a problematic proposition in these pages–then shouldn’t workers have a say in how these companies are run? Webber and McCarthy are both sympathetic to this idea, but disagree about how well such efforts have worked in the past and how likely they are to work in the future.

You can view the other parts of the debate here.

LPE: Let’s start with where we are now and how we got here. How did we get to a place where some workers get to decide how their retirement assets should be invested, while others don’t? What were the key fights between labor groups, employers, and financial industry players on this question, and what were the outcomes?

David Webber: Worker shareholder power can be found mostly in public sector pension plans, which are publicly-created retirement plans that invest the retirement savings of public-sector workers. These large state, city, and county employee retirement plans hold at least $4 trillion in assets, roughly 10% of the U.S. stock market, and at least a third of “alternative investment vehicles” like private equity. The most famous examples are the California Public Employees’ Retirement System ($350 billion in assets), the California State Teachers Retirement System ($223.8 billion), the New York City Pension Funds ($195 billion), and the New York Common Retirement Funds ($207.4. billion), among many others. Almost all public pension plans have worker representatives on the boards of trustees, the equivalent of worker representation on corporate boards. These workers are elected by other workers (or retirees) who participate in the funds. Sometimes those worker slots are controlled or heavily influenced by unions. Sometimes workers outright control the board; more often they constitute a minority of trustees.

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Money & Memory, Capital & Communion

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Robert Hockett–

Imagine that I incur an obligation to you – an ‘affirmative’ obligation, let’s say. Perhaps it’s through violating some ‘negative’ obligation to you, wronging you in a manner that triggers a right to redress. Perhaps it’s through promising you something. Perhaps it’s through membership in some group, the members of which are expected to ‘pay dues’ of some sort.

In virtue of this obligation, I, the ower, am now ‘liable’ on the new obligation. You, the owner, now ‘hold’ a new asset – the asset that’s my liability. Here is the start of accounting. Of shared ledgers. All accounting at bottom is obligation-accounting, justice-accounting – tracking what’s due and by whom and to whom.

Liabilities that come into existence ex nihilo – by my promising you something ‘gratuitously,’ for example – give salient rise to a two-sided danger, something a lot like the Janus-faced monetary risk of ‘inflation’ and ‘deflation.’ For one can in principle promise more than she can deliver, thereby devaluing her promises in time. Or, fearing this prospect, she can ‘not make any promises,’ thereby impoverishing her life by depriving it of the rich fabric of association and shared action that lends and brings value to life in communion with others.

Promissory inflation and deflation, through devaluation or contraction, deprive life of much of its obligatory content. And life without obligation would be life without liabilities, life without assets. It would in that sense be life without worth, without wealth, without value. It would be life without any vindicatable expectation – life without ‘rights,’ without ‘wrongs,’ without ‘right or wrong.’

How dismal that would be.

Life with real value accordingly requires, not gold (more on which below), but observance of some ‘golden mean’ – the mean between wronging and not acting, the mean between over- and under-committing. And this is as true of us in our collective capacities as it is of us in our individual capacities.

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Predatory Lending and the Predator State

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Raul Carrillo–

Like most advocates of Modern Monetary Theory (MMT), I didn’t embrace the paradigm because I dig late-night chats about accounting identities. Rather, I found it while pursuing economic justice (following the lead of Angela Harris, Emma Coleman Jordan, and other allies). Today, I fight financial predators — banks, landlords, debt collectors, and agencies engaged in racialized wealth extraction — on the daily. And so, my MMT enthusiasm remains…practical.

Although the commentariat caricatures MMT as a rationalization for U.S. deficit spending, it’s something more powerful — a new interdisciplinary lens, shaped for eyes on the prize of justice. Most importantly, MMT is rooted in legal analysis; its neochartalist foundations help illuminate financial hierarchies — so we can better dismantle them around the world.

As elites literally claim human survival is “too expensive”, it’s crucial for movements to absorb this symposium’s chief insight: money itself, although not always starkly a creature of the “state”, is a creature of law, just like the institutions through which it flows.

When we analyze money as public software, rather than private hardware, we see political economy differently. For example, as Harris argues, any movement for economic justice must overcome the toxic trope of the “undeserving benefit recipient” (and the corollary trope of the put-upon khaki-clad patriarch). In my view, MMT helps us challenge this divide-and-conquer strategy, by undermining the technical premises of “taxpayer citizenship” — the racialized and gendered notion that rights should correspond to one’s nominal contributions to government coffers. When Stephanie Kelton reminds us that “money doesn’t grow on rich people”, she is making an inference LPE readers should appreciate: the wealthy do not get their money by generating it, but by mastering a system that routes tradeable legal claims on real resources that we collectively produce (i.e. “money”) to themselves. As I’ve emphasized, the coercion Robert Lee Hale described leads the rest of us not merely to work, but to work for legal tender, which can settle debts between individuals, but must satisfy debts to the state (most notably, taxes).

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Reclaiming Public Fiscal Power for Transforming Precarity

Reclaiming Public Fiscal Power for Transforming Precarity

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Martha T. McCluskey–

Basic legal ideas about taxation stand in the way of proposals for ambitious fiscal policies to address pervasive economic insecurity among both middle class and lower income households.

The conventional legal framework posits two primary functions for taxation. First, taxes raise revenue to finance government goods and services. Second, taxes redistribute resources, transferring money from some private interests to others based on ideas about distributional equity. Taxes also regulate private economic behavior, but this third function is generally treated as supplementary and subordinate, with economic ordering mainly directed by basic legal rules and the administrative state.

In orthodox law and economics, “optimal” tax policy achieves the two primary goals with the least “distortion” of private value-maximizing decisions in a presumed efficient and equitable market unsullied by taxes. This optimal tax theory aims to replicate a mythical market where money passively realizes and measures an underlying value fixed by barter-like exchanges of real goods, and services.

This seemingly benign conceptual frame implicitly locates economic productivity in a distinct and underlying private market sphere, with government taxing and spending cast as taking value from those who have created it. From this starting point, households can receive public support either as beneficiaries of forced public charity or as responsible consumers willing and able to pay an equivalent amount in taxes. If progressive taxing and spending programs are construed as involuntary, inherently inefficient, transfers of money from productive market winners to support less capable market losers, then that public support will tend to appear to generally inscribe rather than relieve conditions of precarity and powerlessness.

This conventional frame obscures how taxation creates money as a means for generating and distributing economic power and insecurity. Tax theory tends to ignore how law constructs and governs money, treating money as a neutral measure of social contribution.

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Financial Regulation and Social Reproduction

Financial Regulation and Social Reproduction

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Donatella Alessandrini —

Even amongst critical scholars, there is a tendency to treat international regulation of money and finance as “strictly economic”, distinct from the “social” domains of labor, the environment, and socio-economic rights. This conceptual separation cedes the realm of finance to the “neutral” neoliberal technocracy while occluding interrelationships between finance, production, and social reproduction. Placing social reproduction at the center of our analysis forces us to overcome these false dichotomies and confront finance’s role in the shaping of the “social”.

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Money and Property

Money and Property

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Lua Yuille and Rohan Grey —

Money and property law are mutually constitutive. Property rights are defined and valued in terms of their relationship to monetary instruments, while whether something counts as a monetary instrument for this or that purpose is itself a result of bundling property rights a certain way. Yet property law treats money as opaque: a neutral measuring stick that happens to prove useful in the process of doing the real work of property.* This is partly because money is grossly under-theorized and misunderstood by property law scholars. In property law, “money provides the unit in which prices appear, supplies a medium of exchange, and acts as a store of value”, but it does so as if by magic. Unlike students of economics, who are introduced to money through the self-consciously ahistorical fable that money evolved as an evolutionary response to the inefficiency and inadequacy of barter, American law students are not formally introduced to money at all. Money is taken as an idea that needs no articulation or unpacking. The result is a  ‘functional monetary illiteracy’ that fails to conceptualize the complicated relationship between money and property law, serving to obscure the role of the state and of private power in defining each.**

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The Legal Construction of Value

The Legal Construction of Value

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Roy Kreitner —

Legal realists and their heirs made it into a truism: law is constantly entangled in value judgment. The statement is typically aimed at undermining one sense of the claim that law and legal judgment are or even could be neutral, value-free. But that is no the full extent of the realist point.

Beyond the issue of neutrality lies the question of how law constitutes value in the first place. It is not just that legal decisionmaking necessitates underlying values, it is that legal decisions shape the process of attributing, assigning, or creating value. Of course, there are multiple modes of valuation, and some are (thankfully) quite distant from the law (think friendship). But modern market societies overwhelmingly value resources, goods, services, and benefits of almost every stripe through money, and money is made of law. This may seem a simple point, but exploring its implications should disorient—and perhaps reorient—how we think about the relationship between law, values, and markets.

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