by Skye Winspur

I want to make the case that democratic socialists should care about interest rates set by central banks. While I do not worship capitalism, or trust the stock market at all, I do see the value to our society in having central banks. The US Federal Reserve was created, as almost all the US government’s “deep state” institutions have been – Social Security, the Federal Deposit Insurance Corporation, and Medicare are other examples – as a response to repeated failures of capitalism. Financial panics in 1857, 1873, 1893 and 1907 were distressing enough to the investor class, not to mention ruinous to many workers, that in 1913 they pushed Congress and President Wilson to create a central coordinating institution for banking. The wisdom of not tying the value of money to shiny metallic elements would have to wait about sixty more years.

Apparently one thing Jeffrey Epstein believed strongly in was the virtue of negative interest rates. And for quite a while, the world was accommodating to him in this regard as in others, with the Federal Reserve under Ben Bernanke embracing a zero-interest-rate philosophy, and the central bank of Japan wedded to it for an even longer stretch (raising interest rates barely above zero only in March 2024). I turned 26 years old in 2008 and I remember how we were all told (by Bernanke and Larry Summers and every other Wall Street man) that slashing interest rates would “stabilize the economy,” create jobs jobs jobs, encourage every poor striving youngster to take entrepreneurial risks, cure cancer faster … What it actually did do, unquestionably, was stimulate the construction of new coal plants, usually in the Global South; encourage predatory subprime lending to people whose incomes were very precarious (the subprime rate always being substantially higher than the central bank one); and generally enable already mega-rich men to embark on vainglorious capital-intensive boondoggles that caused harm to the environment and surrounding communities (like Elon Musk’s “city” complex Starbase, which the Obama-era EPA could probably have done something about if it really wanted to). Because as soon as interest rates fall below zero, it is more profitable to spend one’s money on anything at all than store it in the bank. Of course, paying one’s workers more rarely if ever spontaneously enters the thoughts of those possessing this money, despite some economists’ claims that wage increases are “organic” or “natural” in a growing economy.

Morally speaking – and this may just be my inherited Scottish thrift speaking – I feel that saving is not the same as hoarding. Still, I also feel that wealth inequality has reached hyper-outrageous levels. Therefore, I think a wealth tax on all assets above $50 million, as Saikat Chakrabarti has proposed, is absolutely justified. I also think raising the FDIC insurance cap on deposits to half a million dollars is a very good idea, because young adults should be able to save up for homeownership in Dane County with one bank account without fear of bank failure during the next panic. The problem here is that if interest rates on CD savings accounts are zero or even less than one percent, as Kevin Warsh appears to want to push for with all the fervor of a recent convert to Trumpist orthodoxy, there is little to no financial incentive to save the sums required for a house or any similarly large purchase. Young people may even be (more) tempted to sign up for ICE or CBP and grab a quick signing bonus, hoping that they will not be asked to do anything too atrocious in the next three years. Quite a way to compound the systemic evil of the carceral state.

I am not a Marxist and I do not believe in a final, total abolition of capitalism. I think if we are going to have a central bank like the Fed (and despite the paranoid rantings of Rand Paul-aligned libertarians, I think we should) it should maintain a robust interest rate, not so high as to make borrowing impossible but not so low as to promote the creation of Starbases and Fyre Festivals and other spectacular wastes of financial resources – and no, the money Netflix made off the Fyre Festival documentary does not redeem that project. The evil of capitalism cannot be changed by loosening regulations, refusing to use preferred pronouns, or cutting borrowing costs – this is the false promise of which Trump is always trotting out new variations – it can only be reduced, and reduced very substantially, by strong enforcement of an equitable rule of law and applying brakes in the form of central bank monetary policies. To my mind, keeping interest rates well above zero is one of those brakes.