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Public Money without Public Goods


David Stein (@DavidpStein) is Assistant Professor of History at the University of California, Santa Barbara, and author of Fearing Inflation, Inflating Fears: The Civil Rights Struggle for Full Employment and the Rise of the Carceral State, 1929-1986 (forthcoming).

This post continues a joint symposium with our comrades at Just Money on Destin Jenkins’s The Bonds of Inequality.

At the opening plenary of the 1998 Critical Resistance conference, the longtime radical intellectual Mike Davis took the stage with a piece of concrete in his hand. Davis described to an audience of those dedicated to abolishing policing and imprisonment the vexed role of public investment in 20th century California. “When I was a child growing up in California in the 1950s, this [concrete] is what the California dream was made out of,” he said. “[The] great dams, new highways, schools, hospitals everywhere; and for a lot of Californians—not all—unionized, good jobs.” But by 1998, something had changed. “Now I look at concrete and it seems like it’s something rather sinister. There is too much of the stink of claustrophobia and human oppression and slavery about it. And you can’t go anywhere in California these days—in rural California—in deserts and cotton fields, or even in the Redwoods without seeing the gray prison walls looming up on the horizon.” As Davis suggested, public money could shape society—it would produce the future. But who controlled it? Who steered its path?

The shift that Davis was highlighting is one that Jenkins also foregrounds—how uneven development at the neighborhood level combined with redlining to enable a “racial welfare state.” As Jenkins puts it, “the racial welfare state, of which infrastructure and social services were a crucial part, became acceptable only insofar as the allocation of borrowed funds helped secure white rights while keeping taxes low.” Bonds of Inequality foregrounds public money for sewers and schools and other infrastructure and amenities which comprised this racial welfare state. This was public money producing segregated goods; these segregated, not-quite-public goods both reflected and created racial hierarchies, fabricating whiteness alongside the construction of pools, parking lots, and playgrounds. By the 1980s and 90s, these fiscal capacities were increasingly deployed in the way Davis described—to build cages.

As Bonds of Inequality demonstrates, municipal debt was used to build a racial welfare state, to enrich mostly white bondholders, and to provide wages for mostly white workers in the segregated building trades. In this sense, it was a key component in consolidating what Nell Irvin Painter has highlighted as the third enlargement of whiteness, when Italians, Jews, and immigrants from Southern and Eastern Europe came to be understood as white. These spending choices did not simply reflect a changing concept of whiteness—they contributed to its refurbishment, solidifying the bloc of people who would not just believe themselves to be white, but benefit as such. The boundaries of whiteness were often written onto the redlined map. As Jenkins shows, being white in San Francisco meant not living in Hunters Point, and thus not being exposed to toxic land uses. Being white in San Francisco meant being part of what he emphasizes was a cross-class compact where bondmen in the city’s Bond Screening Committee developed the infrastructure they deemed needed, and white workers built it.

Bonds of Inequality underscores how the municipal bond market was shaped by actual people—the group that Jenkins dubs “the fraternity.” This was a group of men who, “develop[ed] trust through racism, elite white supremacy, rip-offs, and misogyny, [and in so doing, these] furthered their ability to act collectively to stitch together the municipal bond market.” Their decisions about which cities, which bonds, and at what interest rates shaped the lives and possibilities of whole communities. Although euphemisms were frequent, Jenkins shows how the perceived credit-worthiness of cities was wholly intertwined with racist assumptions. As a result of this financial architecture, cities have been structurally vulnerable to the whims of the municipal bond market, which is to say, the actual individuals who comprised this fraternity. And making matters more arduous, due to limits on their debt-bearing capacity, state and municipal budgets swing pro-cyclically with the business cycle, leaving cities at their most vulnerable during recessions and business downturns.

The racialized bond market has not been imposed without resistance. I first learned about the municipal bond market in 2006 under the tutelage of the late, great prison abolitionist and environmental justice activist, Rose Braz—the organizer Ruth Wilson Gilmore dubbed “the activist’s activist.” Braz, who had been a key organizer of that 1998 Critical Resistance (CR) conference, was in the midst of trying to halt a massive expansion of the California prison and jail system. The proposal, which would have utilized lease revenue bonds in order to avoid voter approval, would have steered upwards of $18 billion in public money to lenders. But Braz and her comrades in CR and the anti-prison coalition Californians United for a Responsible Budget sought to crash the fraternity’s party.

Braz believed in using a variety of tactics to slow the onset—and remove the existence—of the deadly scourges of policing, prisons, and pollution. While she is no longer with us, we can still learn from her. Alongside the other anti-prison activists of CR and CURB, she sought to prevent the use of lease revenue bonds, bringing a lawsuit contesting how the decision was made. As Braz argued, “We think voters have a right to approve or reject debt. And that was violated here when they used lease revenue bonds to try to build these new prison cells.” It was tactics like these, along with a number of other factors, which ensured that those 78,000 new prison beds were not built. Like the activists who make memorable appearances in Bonds of Inequality, Braz and Critical Resistance confronted a political and financial logic whereby public money was used to control and cage poor people, Black people, Latinx people, trans people, and people of color, and refused when it came time to refurbish or build schools, parks, or public housing. Braz and these activists contested what Jenkins highlights as the efforts “to further insulate bond finance from popular input.” In this sense, what Braz and her comrades were confronting was the product of a history that Bonds of Inequality tracks: how the racial welfare state created contradictions—as well as institutions—which, as Gilmore has argued, would be politically resolved by the carceral state.

The efforts of Braz and her comrades also fit within a longer trajectory of political struggle to challenge the bondmen and their fraternity. In the 1970s, Watts Congressman Augustus Hawkins tried to create some alternatives to the pro-cyclical nature of state and local budgets by further connecting them with the federal government. An early version of what would become the Humphrey-Hawkins Full Employment Act included a provision to create a “permanent, counter-cyclical grant program that will serve to stabilize State and local budgets during periods of recession and high unemployment.” In a sense, this could have been an automatic-stabilizer for state and local governments, thus leaving them less dependent on the capriciousness and high interest rates of the bond market during the times of greatest fiscal stress. Although this may not have fully euthanized the rentiers or altogether solved the conundrum of fiscal federalism, it could have undermined the power of the bondmen over urban policy.

However, this section of the Humphrey-Hawkins bill was excised in subsequent versions of the bill after coming under attack from those who wanted to sustain the existent racial, economic, and power inequities. This opposition was framed in different languages. Notorious North Carolina Senator Jesse Helms’s chosen economist cautioned against such a program for states and municipalities, which in his mind would enable “federal governmental domination.” J. Charles Partee, on behalf of the Federal Reserve, opposed this provision due to concerns about “[t]he inflationary implications of… stabiliz[ing] State and local government budgets over the cycle.” Readers will surely be familiar with the relationship between white supremacy and states’ rights rhetoric, but the connection with inflation may be less clear. During this period, fears of “inflationary bias” were often deployed to uphold the status quo—in defense of elite governance and central bank independence; on the heels of the victories of the civil rights movement, it also merged with trepidations from some of too much democracy. Jenkins emphasizes one of the concrete ways this played out: the municipal bondmen themselves thought their power depended on preventing federalization of the municipal bond market.

Indeed, the role of the federal government haunts Jenkins’s book. One of the shadow stories of Bonds of Inequality is how the Federal Reserve’s interest rate hikes roiled the municipal bond market even before the 1979 Volcker Shock. In 1956, it was the Fed’s high interest rates that upended San Francisco bond issues and would facilitate the 1957-58 recession, a key instance of what I’ve written about elsewhere as Jim Crow monetary policy. A decade later, the Fed’s interest rates hikes enabled the 1966 credit crunch—something Jenkins reveals to be of critical importance in the history of both San Francisco and the time horizons of a financialized economy—pushing an increase in short-term over long-term debt issues. All this is before the wrath of the 1970s high interest rates. Jenkins shows how just as Black people were winning political power, bondmen and bankers were making it more difficult to utilize.

The battle at the federal level continues today. In the past year, as the pandemic-induced recession put state and local budgets in dire straits, Congress gave the Fed a brief opportunity to alleviate their fiscal stress by creating a Municipal Liquidity Facility (MLF). As Jenkins highlighted at the time, the Fed’s new credit facility could “undo decades of damage.” But instead, the Fed—along with Treasury Secretary Mnuchin—did basically what the municipal bond fraternity would have advised: they backstopped and stabilized—but did not repair—the municipal bond market. To run their new credit facility, the Fed hired a member of that same fraternity, one whose prior contribution to public service was helping create the infamous Puerto Rico Oversight, Management, and Economic Stability Act and its fiscal control board—dubbed by many Puerto Ricans, “la junta.” Then, when the Fed did allow struggling municipalities to borrow from the facility, they only did so at high, “penalty rates.” In the words of the Center for Popular Democracy’s Fed Up campaign: the MLF was “aiming to underachieve.” Or, as Cong. Ayanna Pressley and I argued in July 2020, “It is unconscionable that as cities and states battle these dual public health and economic crises, relief would be conditioned on accepting punitive interest rates.”

Despite its squandered promise, the MLF also provided a glimpse of what types of public investments are possible and how they can be financed beyond narrow frames of 1:1 redistribution. It is no accident that two of the most important books on racial capitalism in the 20th and 21st Century—The Bonds of Inequality and Ruth Wilson Gilmore’s Golden Gulag—make public debt a critical feature. As Gilmore emphasizes, “the employment of working people’s future surplus (what repayment of public debt is) is a political decision… The problem is not, then, debt, but rather the uses to which public borrowing is put.” By documenting how public debt produced our present nightmare, Jenkins and Gilmore also allow us to dream about its alternative uses; how we may use public money to attempt to mend the ills of our era, to create what anthropologist Hannah Appel has called reparative public goodseducation, housing, healthcare, and jobs for all.