Student loan payments are scheduled to begin again this October after a pause of more than three years. Because of a Supreme Court decision last month, these payments will resume without a forgiveness plan from the Biden administration that would have wiped out up to $20,000 from some borrowers’ balances. 

We want to know more about how the end of the pause will affect individual borrowers. If you are among the borrowers expecting your student-loan payments to resume, we’d like to hear from you. Did you make a major purchase, like a home or a car, during the pandemic pause? Did you take on more debt? Did your financial situation change in other ways? What will the end of the payment pause mean for your life and finances more broadly? Fill out the form below to tell us about your experience, and we might reach out to hear more.

Welcome to FiveThirtyEight’s politics chat. The transcript below has been lightly edited.

nrakich (Nathaniel Rakich, senior elections analyst): Could an economic cataclysm be just a few weeks away? Experts are warning that could indeed happen if the U.S. doesn’t raise the debt ceiling, the statutory limit on how much money the federal government can borrow in order to pay its financial obligations. (Raising the debt ceiling doesn’t authorize new spending — it just allows the nation to pay its bills on stuff it’s already bought.)

As they did in 2011 and 2013, congressional Republicans who think the federal government spends too much money are refusing to raise the debt ceiling without significant spending cuts, setting up a showdown with President Biden. Meanwhile, Treasury Secretary Janet Yellen has warned that the ceiling could be reached as soon as June 1. (The exact date remains unknown, but the Bipartisan Policy Center has estimated it will be between early June and early August.)

The situation is precarious not only for the U.S. economy, but for both political parties. It’s not a great look to be seen as playing a game of chicken with the national economy! So for this week’s politics chat, we’re going to discuss which party could have the most to lose politically from a debt ceiling standoff — or, in the worst-case scenario, an economic crisis. First, though, what’s the latest on the negotiations?

ameliatd (Amelia Thomson-DeVeaux, senior reporter): Right now, we still seem pretty far from a deal. On Tuesday, Biden met with congressional leaders, including House Speaker Kevin McCarthy, to talk about a potential resolution, and when they emerged, they said they hadn’t made any headway (though the two sides will meet again on Friday). Biden said going into the meeting that he won’t propose a short-term increase that would avert an economic meltdown while the negotiations continue, while Republicans are continuing to use the potential for default as leverage to demand spending cuts. Biden has made it clear he does not want spending cuts. So … it’s hard to see at this point how the two sides are going to come together.

geoffrey.skelley (Geoffrey Skelley, senior elections analyst): It does seem like there are many miles to travel to get a deal. Biden has said he wants a “clean” debt ceiling hike — that is, one without spending strings attached — while House Republicans narrowly passed legislation in late April that would raise the debt ceiling but also freeze public spending and repeal key parts of Biden’s agenda — which, of course, the administration will be loath to accept.

Monica Potts (Monica Potts, senior politics reporter): Yes, as Nathaniel said, Republicans have been trying to use the debt ceiling to force spending cuts during the last two Democratic administrations. The debt ceiling debate is one that can have real consequences: If we hit it, the government could grind to a halt and start defaulting on its debts.

nrakich: Yeah, although nothing focuses the mind like a deadline. (I myself waited until an hour before this chat to prepare for it!) I’m not surprised that we’re nowhere near a deal three weeks (at least) before D(efault)-Day. If by May 31, the two sides are still super far apart, I’ll be more worried.

ameliatd: That three-week cushion may be a bit deceiving, Nathaniel. There actually aren’t a lot of days between now and June 1 when both houses of Congress are in session and Biden’s in Washington.

nrakich: Ooh, good flag.

OK, so at the very least, Congress and Biden are risking an economic disaster with their hardline negotiation stances. Even if they reach a deal before the deadline, the American public likely won’t appreciate that their leaders brought the economy so close to the brink. Who do you guys think would take the brunt of the blame in that scenario? 

Monica Potts: In recent fiscal showdowns comparable to this one, Americans have tended to blame Republicans in Congress more than the Democratic president. People worry about the consequences of a default. According to a recent YouGov/CBS News poll, 70 percent of Americans supported raising the debt ceiling to avoid one. 

Also, it’ll depend on the concessions that each side makes. When voters hear about “debt,” they tend to think that the U.S. government spends too much money, but when you drill down on specific programs, there aren’t many they’re willing to cut.

ameliatd: Yeah, I think a lot depends on what’s actually in the deal. Big spending cuts tied to a debt ceiling increase could be unpopular: A recent ABC News/Washington Post poll found that 58 percent of Americans wanted the debt ceiling and federal spending to be handled as separate issues. Just 26 percent said that Congress should only raise the debt ceiling if Biden agrees to cuts. So there’s actually quite a bit of risk for Biden here if he agrees to cut popular programs.

nrakich: In 2011, when then-President Barack Obama and congressional Republicans agreed to a deal that included deep spending cuts, Americans’ opinions of Congress and the Republican Party decreased — but so did Obama’s approval rating. 

ameliatd: Biden has another incentive to fight back: What Republicans are asking for is very much at odds with his legislative agenda. The plan unveiled by House Republicans in April included expanding work requirements for federal-aid programs, blocking Biden’s proposed student loan forgiveness program, and repealing some clean-energy provisions from last year’s Inflation Reduction Act, including rebates for high-efficiency home electric devices. 

But of course, the risk of default is also pretty bad!

geoffrey.skelley: Something important to keep in mind here are the dynamics of the narrow GOP majority in the House. When I spoke to experts about the debt ceiling fight back in February, there were two ways to look at this. On the one hand, the GOP could be reluctant to go to war over the debt ceiling because it lacks an electoral mandate, especially following what was widely viewed as an underperformance in the 2022 midterms. On the other hand, Biden was always unlikely to go along with a plan that had broad Republican support (like the bill the House passed), and every Democratic vote gained as part of a possible deal could mean many lost GOP votes. And on top of his narrow majority, McCarthy had a difficult fight to become speaker, so his control over his caucus is limited, which could complicate how many conservative priorities he can abandon in negotiations with Biden.

nrakich: (As a side note: I do wonder whether McCarthy’s speakership will survive this fight.) 

ameliatd: Right, this is a tricky position for everyone — which is why some wild possible solutions are being thrown out there. That includes a bipartisan discharge petition — a procedural move that would allow rank-and-file House members to force a bill to the floor, bypassing Republican leadership — and an attempt by Democrats to raise the debt ceiling unilaterally.

And don’t forget the trillion-dollar coin, the internet’s favorite solution that will never happen.

geoffrey.skelley: When it comes to procedural ideas like the discharge petition, however, experts think that’ll never work in time. A House member may file a discharge petition when a bill has been stuck in committee for at least 30 legislative days. But to successfully force the bill to the floor, a majority of all House members must sign on. This rarely happens, though: Since the 1930s, fewer than 4 percent of the discharge petitions filed in the House have gotten enough support to get out of committee. And even if it could work, Congress does not have that kind of time! A legislative day is a day the chamber is in session, not just 30 straight calendar days. Moreover, there are other mandated waiting periods in the discharge process that would make it too time-consuming to be a realistic solution. 

nrakich: What about just declaring the debt ceiling unconstitutional? Biden raised that possibility after the talks on Tuesday.

Monica Potts: The notion that the president can just ignore the debt ceiling was floated during the Obama administration. The idea is that since the 14th Amendment says public debt cannot “be questioned,” the president has the authority to just continue paying debts. This would be legally uncharted territory, to say the least. 

ameliatd: Yeah, I can take a wild guess at what the (very conservative) Supreme Court would think of Biden raising the debt ceiling on his own …

Monica Potts: Exactly.

nrakich: OK, then let’s consider the unthinkable: The U.S. defaults on its debt. What would happen to the economy in that scenario?

ameliatd: This is where we cue up the scary music, because it could be very bad! The White House Council of Economic Advisers released a projection last week that if the government defaults for even a week, 500,000 Americans would lose their jobs. A longer crisis — think three months or longer — could, according to this projection, tip the country into a full-on recession in which millions of people lose their jobs and the stock market tanks.

And economists already think the economy is pretty fragile. The job market is robust and the unemployment rate is low, but the Federal Reserve has been hiking interest rates for over a year in an effort to slow inflation. It would get even more expensive to borrow if the country defaults.

Monica Potts: The nation has never defaulted on its debt, so it would be an unprecedented situation. But in 2011, just getting close to reaching the debt ceiling caused Standard & Poor’s to downgrade the U.S.’s credit rating. And as Amelia said, economists are already predicting economic turmoil. And the economy has been a bit weird since the COVID-19 pandemic began: The average American is already struggling with inflation, and this could add to economic burdens.

nrakich: Could the resulting economic crisis impact the 2024 election? Which party do you think would have more to lose in the event of a debt-ceiling-caused recession?

geoffrey.skelley: Historically, we definitely associate economic troubles with bad electoral performances for the president’s party. (As the man said: “It’s the economy, stupid.”) Some examples:

Panic of 1873: Republicans take huge losses in the 1874 midterms, then Democrats nearly win the much-disputed 1876 presidential election.

Great Depression: Republicans take huge losses in the 1930 midterms, then President Herbert Hoover loses reelection in a landslide against Franklin Roosevelt in the 1932 presidential election.

Late 1970s stagflation and 1980 recession: President Jimmy Carter loses reelection to Ronald Reagan in the 1980 “Reagan Revolution,” which helps the GOP retake the Senate for the first time since the 1950s.

I could list many other instances, too. However, a debt default could be a different beast: In that situation, it would not be hard for Democrats to argue that Republicans could have voted to raise the debt ceiling with no strings attached to avoid a default. So I’m less certain that Biden would receive the majority of the blame.

Monica Potts: While I think Americans might initially blame congressional Republicans, a long, drawn-out economic disaster would probably impact Biden more. According to a Gallup poll from April, most Americans (64 percent) had almost no or only a little confidence in Biden recommending the right thing for the economy. A downturn precipitated by the failure to come up with a deal would feed into the idea that Biden isn’t good on the economy.

nrakich: I think that makes sense, Monica. Americans might blame Republicans for causing the economic crisis this summer. But if it’s not cleaned up by fall 2024, they might look at Biden and say, “What gives? Why haven’t you fixed this?”

geoffrey.skelley: I guess after the 2022 midterms and the less-intense-than-expected effect of inflation on voting choices, I’m skeptical frustrated voters would absolve the GOP for its role in a default and vote for the party’s presidential candidate. Granted, that could be different in the event of a long-lasting economic catastrophe.

ameliatd: It does put Biden in a very tough position. As Nathaniel and Monica said, the economic fallout from a prolonged default could extend into next year, and that would cast a pall over Biden’s reelection campaign. But it’s also going to be bad for his campaign if he agrees to a deal that undoes many of his signature accomplishments.

nrakich: Of course, there’s also just the possibility that Democrats and Democratic-leaning independents will blame Republicans, and Republicans and Republican-leaning independents will blame Biden, and the electoral impact could be a wash. According to the ABC News/Washington Post poll that Amelia cited earlier, 39 percent of Americans said they would blame congressional Republicans in the event of a default, 36 percent said they would blame Biden and 16 percent said they would blame both equally.

Monica Potts: I agree, Nathaniel. It’s pretty clear Americans in general view the economy through a partisan lens, perhaps more so than ever thanks to increasing polarization. It’s worth remembering that most Republicans in Congress voted to raise the debt ceiling in bipartisan votes three times under President Donald Trump without spending concessions, despite growing debt during his tenure. This is really a partisan fight, and a fight over priorities. The debt ceiling is just the immediate cause.

The American economy is booming and robust. Just look at the chart below, which shows that the overall unemployment rate — the share of people within the labor force who are without work but are looking for it — is lower than it’s been in more than 50 years:

But wait! Americans just don’t want to work like they used to. As you can see in the following chart, the labor force participation rate — the share of all Americans in the labor force — was 62.6 percent in March 2023, considerably lower than the 67.3 percent peak it reached around Y2K:

There’s a paradox here, and it all goes back to how we measure different labor statistics and think about America’s economy. The first chart represents the sexy topline employment figure that presidents usually brag about. But it’s the second chart, representing the size of the labor force, that’s giving economists heartburn. And that’s because labor participation gets at the core of a growing concern for the American economy: It’s growing old. 

Like people in most developed countries, Americans are living longer and having fewer children. That has meant a shrinking pool of workers in recent decades — and a burgeoning cohort of Americans moving into retirement. According to one recent estimate from the Congressional Budget Office, the share of Americans age 65 or older is expected to grow faster over the next 30 years than the share of Americans between the ages of 25 and 54 — referred to as “prime working age.” A 2017 projection from the U.S. Census Bureau found that by 2060, nearly a quarter of all Americans will be of retirement age — up from 15 percent in 2016. The CBO expects the labor force participation rate to continue to dip over the coming decades, and most projections of the U.S. economy forecast a much slower growth rate in the coming decades than it has enjoyed for the past century.

“We’ve basically been in a plateau for the last 10 years, as the strengthening economy has been offset by this downward pull from aging,” said Harris Eppsteiner, a former research economist at the White House’s Council of Economic Advisers. 

In concert, those two forces suggest the coming decades will see fewer Americans working and more who need caregiving, creating a potentially crushing burden on the U.S. economy and welfare system. What’s unclear, though, is just how big of a deal that is for America’s economic future, as a lot hinges on what policymakers do in the coming years to beat back Father Time. For now, the good news is that America has a lot of time to solidify its approach to dealing with an aging population — and its existing welfare system is, perhaps surprisingly, resilient to the coming economic winds of change.

Now, we know from a fairly robust body of research that as a country’s population ages, there is generally a significant and negative impact on overall economic growth. A 2016 paper from the National Bureau of Economic Research found that a 10 percent increase in the share of a population that’s 60 or older — more gentle than the projected increase in the U.S. over the next four decades — decreases growth in per capita gross domestic product by 5.5 percent. And a 2020 paper published in The Lancet found that a decline in the working-age population alone reduces GDP growth rates — and explains why China’s economy was forecasted to fall behind America’s by the end of the century.

We also know that an aging population makes it harder to measure economic recoveries — perhaps even obscuring real gains. For example, a 2017 paper from the Peterson Institute for International Economics found that population aging explained most of the decline in American labor-force participation since the Great Recession. The researchers found that if the U.S. economy had maintained the same age structure throughout the crisis, then an additional 1.7 million workers would be in the labor force. In other words, the labor force lost almost 2 million workers during the Great Recession thanks to aging alone.

“By the beginning of 2019, [labor-force participation] was still meaningfully lower than it was in the fourth quarter of 2007,” Eppsteiner, one of the paper’s co-authors, said. “So naively, you could say, ‘Well, the economy has a really long way to go [to get back to pre-recession levels],’ … but what we’re trying to point out was, well, no, because we have this demographic transition happening. So you need to account for that.”

Beyond the measured effects on economic growth, population aging threatens to overwhelm the budgets of many wealthier, developed countries like the United States — and efforts to smooth the effects of demographic transitions on the welfare state have been met with backlash. It is quite possible that, as tens of millions more Americans are projected to need Social Security benefits in the coming decades, a similar upheaval will take place in the American political economy. Ronald Lee, a professor of demography and economics at the University of California, Berkeley, told me that he believes the biggest issue from America’s aging population isn’t declining GDP; rather, it’s how it might affect the distribution of the nation’s resources.1

“It becomes a problem because of our systems and arrangements for redistributing income to different ages in the population,” Lee said. “It’s more about how we distribute the pie, rather than how big the pie is.”

The demographic transition could upset the existing order in a few different ways. As a consequence of population aging, more and more people will move out of working age into retirement, which means the welfare system will be burdened by having more people receiving Social Security benefits than those who pay into the system. For the system to maintain itself, then, younger Americans would have to pay more into the system, (i.e., through higher taxes), accept smaller benefits or stomach a later retirement age. That might be a tough political sell in a country where touching Social Security has been bandied about for generations but never come to pass — even for the most fiscally conservative political leaders.

But that doesn’t mean that the American economy, or even the welfare system, are doomed by an aging population. In fact, though overall economic growth is threatened by population aging, the opposite is true for per capita wages, consumption and productivity, which may actually rise in such a scenario. That’s because an aging population means more capital per available worker, assuming that savings rates stay the same. 

Some have even argued that aging presents an opportunity for growth and innovation in the U.S. economy — not just a challenge — and one that older Americans can have a say in building. Jim Johnson, a professor of strategy and entrepreneurship at the University of North Carolina, Chapel Hill’s Kenan-Flagler Business School, told me that if viewed as an asset, America’s more than 70 million baby boomers could help build “the longevity economy,” or what the economy will have to look like to accommodate an aging population. That could have the added benefit, Johnson added, of helping the millions of workers who were forced to retire during the pandemic, who are disproportionately Black men with low savings.

“Everything has to change in both the built environment and the social environment to accommodate an aging population,” Johnson said. “We have [millions of] baby boomers, turning 65, at the rate of 10,000 per day, every day, seven days a week … a lot of them are working much longer past age 65, and they are major consumers in the marketplace. Given the labor market challenges that we’re facing today, post-COVID, ‘encore careers’ are something that we’re going to have to pursue in a major way.”

And there are a number of other ways policymakers can mitigate the effects of an aging population on the economy. One widely accepted solution is boosting immigration — particularly among a younger cohort. Higher rates of immigration help countries experiencing population aging because immigrants tend to be younger and therefore more able to work than the domestic population. And forecasts of the American economy tend to assume that by 2030, population growth from immigration will supersede that from natural increases (births minus deaths). Another potential solution, according to Eppsteiner, is promoting more “active labor market situations,” or policies that seek to boost employment among Americans of prime working age. According to a 2016 analysis by the White House’s Council of Economic Advisers, only two OECD countries spent less than the U.S. on programs to encourage labor market participation — like job training programs and employment subsidies — as a share of their GDP.

Moreover, Social Security, which has come under fire for its precarious future funding, might not be in all that much peril. According to Lee, what sets the U.S. apart from European countries is the share of income that its older residents draw from assets, rather than government transfers, in their old age. That arguably reflects poorly on the generosity of the American welfare system, but it also means that we’re potentially more insulated from disruptive demographic shifts.

“In the U.S., on average, about two-thirds of income and consumption [for the elderly] is coming from asset income, and only about a third for the elderly is coming from Social Security,” Lee said. “But if you look at other countries, particularly European countries, it’s not uncommon to have close to 100 percent of old age consumption funded by public transfers.”

Perhaps the biggest lesson we can take from America’s ripening population is that there is no one settled conclusion of its ongoing demographic transition. Yes, the American public will continue aging, and the way Americans save, consume and live will likely look a whole lot different in 2043 than in 2023, but there’s no inevitable crisis involved — if we see to it.

“Demographics aren’t destiny when it comes to this,” Eppsteiner said. “We have the ability to make policy choices to mitigate the challenges that the aging population poses. We shouldn’t assume that just because we had a baby boom, the baby boom is going to pass into retirement and that we’re sort of stuck. Because there are things that we can do.”

When the world grinded to a halt back in March 2020, one of the most tried and true rules of the U.S. economy once again reared its ugly head: When the economy goes into crisis, Black workers are disproportionately harmed — and are often the first to be affected. Unemployment spiked for everyone in April 2020, but to a considerably higher level for Black workers than the country as a whole. The share of all Americans who had a job fell, but it dropped even more for Black Americans. And existing wage and wealth gaps reinforced and even exacerbated those racial inequities, as Black workers had less saved up for the rainiest of days — or years — in our economy.

Since then, however, something unexpected has happened: Black workers have made some of their biggest economic gains in recent memory. According to data from the Bureau of Labor Statistics, median weekly earnings for Black workers rose by 11.3 percent from 2021 to 2022, larger than the 7.4 percent gain for all Americans. The Black unemployment rate is lower than it was at the start of the pandemic. And a greater share of Black Americans is employed than at any time since July 2001, as the gap between white and Black employment rates has virtually vanished — continuing a narrowing trend that actually predates the pandemic: 

A fairly robust canon of scholarship has found widespread, systemic discrimination against Black Americans in the labor market, ranging from employers who penalize job applicants with “African American sounding names,” to perceptions of drug use stifling Black employment, to Black workers earning consistently lower wages for the same work done by white counterparts. The deck is stacked against Black workers in other ways, too, as the decline of manufacturing jobs during the age of globalization, racial gaps in educational attainment and an insufficient minimum wage have all contributed to a monumental loss of earnings for Black Americans.

But just how unlevel the playing field is also depends on the economic times we’re in, and that can help shed some light on why Black workers have made a comeback. 

“When the labor market gets very tight, employers are getting more desperate for applicants and for hires. When there’s fewer applicants for each job opening, employers give a closer look to workers who maybe they would have dismissed when they had a big, tall stack of applications,” said Aaron Sojourner, a senior researcher at the W.E. Upjohn Institute for Employment Research. 

The converse is true, too, as Black workers tend to suffer when demand for jobs is high, making it easy for employers to discriminate without facing consequences for shrinking their talent pool. But right now, the number of unemployed Americans per job opening is at a 15-year low, according to the Bureau of Labor Statistics. That tight labor market — and the shifting demographics of the United States, where the white share of the workforce is shrinking — has translated to a relatively fruitful economic environment for Black workers.

Of course, the flip side is that economic crises tend to fall the hardest on more marginalized workers — and Black Americans tend to feel the brunt of the burden. Following the Great Recession, it took only slightly longer for the Black unemployment rate to reach its pre-recession point, compared to white Americans. The only problem was that Black unemployment was much higher to begin with, as the pre-crisis “normal” for Black unemployment hovered around 8 percent, compared to just 4 percent for white Americans. That roughly 2-to-1 relationship between Black and white unemployment has held true for a long time, according to Elise Gould, a senior economist at the Economic Policy Institute. The gap is especially harmful during times of crisis — when Black workers routinely face unemployment rates upwards of 15 percent — but it also means that Black and other marginalized workers can see their unemployment rates drop faster than white workers.

“If the unemployment rate goes down by 1 percentage point, Black workers often see a decline of 2 percentage points,” Gould said. “And so Black workers tend to be like many other historically marginalized workers, batted around more in the business cycle, while white workers may be a little bit more insulated from the more extreme ups and downs.”

That racial gap in unemployment persists, too, at least in part because Fed policymakers have long tolerated lower Black employment as an intractable fixture of the economy, justified by Black Americans’ lower educational attainment and skill levels — even though there’s little evidence for that explanation, according to William Spriggs, a professor of economics at Howard University and chief economist for the AFL-CIO. Arguing against the notion that this disparity is based on an education or skills deficit, Spriggs pointed to the fact that white Americans without a high-school diploma typically experience lower unemployment than all Black Americans. And the Fed’s success story of bringing down inflation in the 1980s, as Spriggs sees it, leaves out the fact that the economic progress that Black Americans had made over the prior decades was wiped out by a crushing recession.

“The Federal Reserve created the worst labor market since the Great Depression, deliberately,” Spriggs said. “The Fed now memorializes this as, ‘This is our ideal. This is what we did. This was fantastic. We beat inflation.’ They also put Black people into a depression for over 10 years. Black people were living under a Great Depression.”

Furthermore, we also know that this current tight, favorable labor market for Black Americans is unlikely to last long — and its dissipation could have dire consequences. In the present economic moment, where tamping down on inflation remains the Fed’s top priority, policymakers have been presented with a significant tradeoff — one that has consequences for millions of workers and harkens back to the one it faced in the ’80s: How much unemployment are we willing to tolerate to bring down inflation? For Black workers, it’s a good bet that whatever number the central bank settles on, they will face a labor market that’s even worse than average — and that the wage growth enjoyed by lower-wage workers, who are disproportionately Black and Latino, will be short-lived. 

Gould doesn’t see the Fed’s tradeoff as a fair one, as she says inflation wasn’t caused by the labor market, but the most vulnerable workers — whose gains have been beating inflation — are likely to bear the brunt of any economic belt-tightening.

“The solutions that the Federal Reserve is following to slow the economy are actually not getting at the source of where the inflation is coming from,” Gould said. “So then the risk is, you raise interest rates too high, and you cause a recession … and that’s going to lead to disproportionate numbers of Black workers losing their jobs or low-wage workers losing their jobs.”

And if we are heading for a recession, we also know that the pandemic-era social safety net won’t be around this time to provide cushion for marginalized workers, which is one reason why the effects of the next crisis will be more acutely felt by Black Americans. Sojourner said he expects the next recession to look a lot less like the pandemic recession and more like the Great Recession, a crisis in which Black families lost nearly half of their household wealth. 

That’s not to say with certainty that we are or are not headed for a recession. (No one really knows yet.) But if history is any indicator, there are reasons to believe that Black Americans would feel the sharpest pain from a contracting economy — and their recent economic gains would be in serious jeopardy.

Welcome to FiveThirtyEight’s politics chat. The transcript below has been lightly edited.

amelia.td (Amelia Thomson-DeVeaux, senior reporter): On Friday, financial regulators announced that they were taking control of Silicon Valley Bank, signaling the largest bank collapse since the global financial crisis of 2008. California regulators closed the bank and put the Federal Deposit Insurance Corporation in charge of its assets. SVB was the victim of a good old-fashioned bank run, set off by a series of bad decisions last year and bad communication about those decisions.

This was — to put it mildly — a big deal for the financial sector. As of last year, SVB, which has been around since the early 1980s, was the country’s 16th largest lender. Its clients were heavily concentrated in tech, and the vast majority of its funds were uninsured, putting companies like Roku and Etsy in a vulnerable position. Then on Sunday, New York-based Signature Bank abruptly closed its doors after a similar run on deposits on Friday.

On Sunday, the Biden administration said that SVB and Signature customers will be made whole — even if their accounts exceed the $250,000 that is covered under federal law. But there’s still a lot of uncertainty about how SVB’s collapse could affect the rest of the economy — and also how the government’s intervention will be received by the public. The Biden administration has underscored that this isn’t a bailout, but it’s not clear if that’s how Americans will see it.

There is a lot to talk about here, clearly! But let’s start with the basics — what the heck is going on with SVB right now?

santul.nerkar (Santul Nerkar, editor): I think there are a number of factors at play here, Amelia. First, it is true that one proximate cause of SVB’s collapse was the Fed’s decision to raise interest rates starting last March. To raise the capital they needed to make their depositors whole, SVB was forced to sell off (among other things) U.S. Treasury bonds. The bond market is very sensitive to interest rate hikes, so the market price for bonds has plummeted, meaning that SVB sold those at a tremendous loss. Add in the fact that SVB had an unusually high number of high-risk depositors — many are not, as you mentioned, insured by the FDIC — and you have a recipe for disaster.

But obviously, to the majority of Americans, the actions of a few C-suite banking execs and federal regulators are opaque. What’s more pertinent to them is the impact on the real economy, and that is where we have a lot more uncertainty. Figures like President Biden have stressed that actions to protect depositors won’t amount to a bailout, but we’re still in the early days of this bank’s collapse and its ripple effects throughout the broader economy.

Monica Potts (Monica Potts, senior politics reporter): In fact, Biden has said that the federal government’s actions are to protect depositors, even those with deposits higher than the normal FDIC insurance limit of $250,000. Reporting has indicated that, remarkably, over 93 percent of the bank’s clients fell into that high-risk category. The bank itself did not have access to the funds necessary to cover deposits after the run on the bank began late last week, and this is exactly the kind of situation that the post-2008 crash rules were supposed to prevent. Among other things, the 2010 Dodd-Frank Act was supposed to raise capital requirements so that banks could better cover losses, and subject them to periodic “stress tests” to make sure they weren’t over-leveraged. So this will also be a question of whether the people who lived through the housing crash and the Great Recession will be happy about another bank crash and the government’s rapid response to protect the financial system.

ameliatd: Let’s talk about the potential ripple effects to the broader economy. If this is just one midsize bank that serves a niche market, why did the federal government need to swoop in? And where does the failure of Signature Bank fit in?

Monica Potts: Some people have argued that this was just the case of one weird bank taking on too much risk and having all its eggs in one sector and that the disaster would be contained. That said, the bank works with small businesses and start-ups that might have immediately had trouble paying workers and clients if the government hadn’t stepped in. Signature seemed to have been similarly invested in cryptocurrency and struggled to stay on its feet after the fallout with FTX. Bank stocks — particularly smaller banks — took a hit on Monday as a result. 

santul.nerkar: Well, we already know that at least several big companies with ties to SVB have been affected significantly so how they’re able to manage their finances will be a tell. But I agree with Monica — the biggest thing I think everyone will be monitoring is how the Federal Reserve reacts. Just before SVB’s collapse, Chair Jerome Powell told the Senate Banking Committee that the institution may accelerate the rate hikes it’s been pursuing to bring down inflation even further — but this latest development has thrown all of that into chaos.

ameliatd: What would have happened if the Biden administration hadn’t stepped in the way it did? Obviously we don’t know the full counterfactual, but would have been the best-case and worst-case scenarios?

Monica Potts: I suppose the Biden administration was trying to avoid a panicked run on lots of other banks, which is why they stepped in quickly. That has more to do with vibes than anything. When people hear a bank is failing, they get nervous about their deposits and nervous about investing in banks, whether or not their situations are remotely similar to Silicon Valley Bank. That was Biden’s first message on Monday: The banking system is safe.

santul.nerkar: I think there was a very real fear that, had the government not intervened, other banks — and their depositors, workers, etc. — would be in peril as well. And that intervention is partly why some are optimistic that we’re not heading for a 2008-style type crisis. Economics commentator Noah Smith has argued that because SVB is much less connected to other banks and the rest of the economy than, say, Lehman Brothers was in 2008 — and because the government’s insurance of the deposits tells everyone else that their money is safe, we’ll avoid an industry-wide run. 

But I do think it’s interesting just how coy the Biden administration has been around using the word “bailout” to describe what’s happening. He wants Americans to know that the situation is under control — while also insisting on the fairness of the process, both for depositors and for others in the real economy who remember the bank bailouts of 2008.

ameliatd: Yeah, so … is this a bailout? How is it different from what happened in 2008?

Monica Potts: In 2008, the government moved specifically to keep banks from failing, and propped them up with Treasury loans. The Biden administration has been saying that since they’re still planning on firing the heads of SVB, letting investors suffer losses, and not using taxpayer funds, it’s not a “bailout.” Nikki Haley, who’s running for the Republican nomination for president, was quick to push back on that. And on the left, Sens. Bernie Sanders and Elizabeth Warren both issued statements with a little skepticism that taxpayers wouldn’t be on the hook for some of the fallout.

santul.nerkar: It all depends on your preferred spin on things. Like Monica said, some have pointed to the fact that the bank fund that’s aiding SVB is not using taxpayer funds to argue this isn’t a bailout akin to 2008. But the fact also remains that even the fund that’s ostensibly bankrolling, well, the banks, is backed by the Treasury Department. That paints a more complicated picture than simply “not a bailout.”

ameliatd: Well, and this is the second-biggest bank failure in U.S. history! It’s kind of hard not to compare it to the 2008 crisis. So let’s talk about the politics — why have Biden and others been so quick to say this isn’t a bailout? 

santul.nerkar: The last one has a really unpopular legacy! According to a 2013 Reuters/Ipsos poll, 44 percent of Americans thought the 2008 bailout was a bad idea, while only 22 percent thought it was the right move. Meanwhile, a full 53 percent of Americans thought that not enough was done to prosecute bankers. And though initial support for the bailout was moderately high, all the way back in October of 2008, those numbers quickly flipped after the bill was signed.

And then, you also have to consider how the Democratic Party has become more staunchly populist on economic issues in recent years — anchored by the success of Warren and Sanders in exerting their policy influence over the party. Calling this a bailout would not only remind Americans of the 2008 lifeboat that was thrown to Wall Street, but it would be out of step with the rhetoric and vision that Biden and Co. have set out since Day One of the 2020 Democratic primary.

Monica Potts: I think that since the Great Recession, there’s been a prevailing sense that the system protects banks but doesn’t protect people. And as Santul said, there’s lasting fallout from that. Banks were protected because they were too big to fail, but the program meant to help people modify their mortgages and stay in their homes was confusing and missed a lot of homeowners. Families lost their homes. We’re still dealing with the fallout today: Some banks are still paying the Treasury Department back, and first-time homebuyers are older and richer than ever, arguably in part because young Gen Xers and millennials took a financial hit during the crash that took years to recover from. 

Add to that the protections put in place to keep banks from being in the same situation again were rolled back in 2018, under the Trump administration. At that time, Silicon Valley Bank’s CEO lobbied for less scrutiny. The argument was that slightly smaller banks like SVB weren’t as connected as the banks hit by the 2008 crash and weren’t taking on the same risks, therefore didn’t need to take part in regular stress tests like bigger banks did. And then lo and behold, once stressed they did fail and needed help because it turns out they are pretty connected to the rest of the financial system after all. 

santul.nerkar: Some research has found that the behavior of banks has a lot to do with Americans’ overall trust in the financial sector writ large. A 2012 paper published in Public Opinion Quarterly found that Americans’ confidence in the banking system is driven by major bank scandals rather than events like recessions or other economic crises.

And as you can see in the following chart, Americans’ confidence in banking has dropped significantly — especially after the 2008 crisis and ensuing bank bailouts:

Monica Potts: In the meantime, Americans feel the economy helps the rich but hurts those who aren’t as well off. The Consumer Financial Protection Bureau, founded after the crash to protect individual financial consumers, is under fire and may be dismantled by the Supreme Court. And Biden’s student loan forgiveness plan is on hold and may end up getting overturned. (Again, by the Supreme Court.) As a result student borrowers, arguably the least savvy financial consumers in the country, may not get a relatively modest cut on their loan balances they were promised, while Silicon Valley companies and banks, who are supposed to know what they’re doing and manage their risks accordingly, are immediately made whole. Sen. Chris Murphy of Connecticut made that point in a tweet.

ameliatd: We’re obviously still watching to see how all of this plays out — but everyone in politics is searching for a culprit. Democrats are pointing fingers at that 2018 banking law, while a number of prominent Republicans are blaming the bank’s “woke” ideology. (I know, that one really seems like a stretch, but it’s not just Donald Trump Jr!) So do we have a sense of who’s to blame for all of this? Was it just one bank that had poor strategy and communication in a bad moment for the sector it served, and we shouldn’t read too into it? Or are there bigger lessons to be learned? 

Monica Potts: I think there were likely several causes. It’s hard to argue that the 2018 law played no role, since, had SVB been subject to the Dodd-Frank regulations established in 2010, the bank might have been forced to undergo stress tests that could have hinted at its vulnerabilities. And I think it’s fair to say that the tech industry has become less popular in recent years: A Gallup poll from 2021 found that 45 percent of American adults have a negative view of the industry and 57 percent say the government should increase its regulation. This may add to the sense that Silicon Valley’s gotten out of control. That matters because tech giants and the startups funded by banks like Silicon Valley have reached into people’s lives. I can imagine discussions about increasing regulations happening soon, but I doubt anything will pass the House right now. I don’t think something exactly like this will happen again, but the ramifications could last because it fits into a longer story about tech and finance.

santul.nerkar: I agree with Monica: I don’t think there’s really one culprit at play here. Obviously, the 2018 financial deregulation — which had 17 Democrats sign on in the Senate — is going to come most under scrutiny here for how it expanded the definition of “too big to fail,” essentially making it easier for banks with assets of greater than $50 billion — but less than $250 billion — to skirt regulation. SVB, which had $209 billion in total assets when it collapsed, fit neatly into that category. 

I also think we need to understand this collapse — and whatever may come as a result — within the current context of the entire economy. After March 2020, there was a well-understood desire to grease the wheels of a shut-down economy and put more money into people’s pockets. That extra stimulus certainly helped the workers and small businesses left in the lurch after people stopped using key services, but it also helped overheat the economy, which eventually led to the Fed raising rates and making SVB’s ultimate decision to pay back its depositors a risky one. All of this has led us to the current moment, in which shaky tech stocks, cryptocurrencies and other speculative assets have plummeted — signaling a potential end of the “era of cheap money.”

More broadly speaking, I think this charts an even murkier course for the Fed moving forward. The collapse of SVB is on everyone’s minds right now, so it seems natural that the Fed would move away from the faster rate increases that Powell signaled last week. All of that seems to be up in the air now, which communicates more uncertainty to consumers and another round in the waiting game for the economy’s landing. 

Transcript

Santul Nerkar: Inflation in America is high. You’ve probably noticed when you’ve gone to the grocery store or gas station. But ordinary Americans aren’t the only ones unhappy with our current 6 percent inflation rate. The Federal Reserve isn’t thrilled, either. The number that the Fed would like to see — its target inflation rate — is 2 percent.

But why did we decide that 2 percent inflation is the way to go? Why not 3 percent? Or 12 percent? For that matter, why not 0 percent??

First thing’s first — the Fed thinks that 0 percent inflation is bad. At that rate, we risk the opposite phenomenon: deflation, where prices drop. Now, lower prices might sound like a good thing. But periods of deflation can actually lead to economic downturns, as research has found it’s bad for wages and overall growth. We’ve seen this multiple times in U.S. history, like during the Great Depression and the Great Recession. One reason is that people tend to delay big purchases when they see prices dropping, because they figure they might get a better deal in a few months. The result is that companies struggle, they lay off employees and wages fall.

Meanwhile, inflation can be beneficial. Let’s say you’ve recently bought a car, and you got a $10,000 bank loan to pay for it. A year from now, with, say, 2 percent inflation that $10,000 won’t be worth as much. At the same time, you’ve maybe gotten a cost-of-living raise to keep up with the value of the dollar. And now you can take some of that extra money you have and put it toward something else you want — which has the added benefit of spurring on the economy.

So, economists generally agree that some amount of inflation is important. And central banks around the world have settled on 2 percent — including in the U.S., where it was officially made the standard in 2012.

But there’s no ironclad rule of economics that says 2 percent inflation is the goldilocks of monetary policy. In fact, some have argued that a 2 percent inflation target is too low — particularly today, when the cure for inflation might be worse than the disease. Typically, to lower inflation, you raise interest rates so that prices go down but it’s more expensive to borrow money. But while inflation has come down since the Fed started raising interest rates in March 2022, it hasn’t come down as quickly as many experts hoped or expected. And if the Fed continues to raise interest rates, it could cause a recession. Businesses would struggle to grow and people would buy fewer houses and cars because they’d have to take on too much debt.

As a result, some economists have said that pursuing a 2 percent inflation target will create an unacceptable level of economic pain for Americans. Others argue that a higher inflation target of 4 or even 5 percent is actually better for a healthy economy, based on research of economic growth in countries with different levels of inflation.

There are inherent tradeoffs with every level of inflation. Run the economy too hot, and it could boil over and make money worthless. Bring it down too quickly, and people feel the pain of mass layoffs and less money in their pocket. That’s the puzzle that Fed policymakers will have to piece together over the coming months.

Over the past 18 months, inflation has dominated our understanding of the pandemic economy. Americans have endured the highest yearly price increases in four decades, from soup to nuts — literally. Even now, as experts and forecasters worry that the economy might dip into recession, observers also remain dismayed about the relative stickiness of inflation. Through it all, we’ve heard an almost mantra-like refrain from the Federal Reserve: We’re still not close to 2 percent inflation.

It might seem odd, then, that this ostensibly carefully crafted rule of monetary policy, the goal of arguably the most powerful technocrats in the world, is sort of … arbitrary. In fact, there’s little empirical evidence to suggest that a long-run inflation target of 2 percent is the platonic ideal for balancing the Fed’s “dual mandate” of price stability and maximum employment. So as the Fed continues to raise interest rates with the stated goal of bringing us back down to 2 percent inflation, it’s worth reexamining this long-held “rule of economics.” Despite its widespread acceptance, there’s a strong case that we should understand it as a product of history — and relegate it to the dustbin accordingly.

Watch: https://abcnews.go.com/fivethirtyeight/video/2-federal-reserves-magic-number-inflation-fivethirtyeight-97719105

“The idea that inflation should be relatively low and relatively stable is certainly a reasonable position to have,” said Jonathan Kirshner, a professor of political science at Boston College who studies the politics of inflation. “But there’s nothing magic or special about 2 percent.”

To understand the potential benefits — and drawbacks — of eschewing the 2 percent inflation target, it helps to know just how we arrived at this rule in the first place. Officially, a 2 percent inflation target was not adopted by the United States until 2012, when the Fed — then chaired by Ben Bernanke — decided to fall in line with the rest of the developed world’s central banks. But starting in 1996, the U.S. central bank quietly started pursuing a target rate of 2 percent under the instruction of former Chair Alan Greenspan, who wanted to keep the news under wraps. The reasons for pursuing that specific number were never clearly articulated by Greenspan, whose “covert inflation targeting” coincided with a decade of fantastic economic growth in the U.S. That lack of transparency was cause for concern for some economists. 

“He didn’t think there should be a [public-facing] numerical target,” said Laurence Ball, a professor of economics at Johns Hopkins University. “He sort of went to comical lengths to not define what he meant by price stability, or to give any vague definitions.”

But according to Ball and other economists, that choice was inspired by the experiences of New Zealand, whose central bank was the first to adopt inflation targeting — a choice that caught the attention of economists around the world. The country adopted the practice because, not unlike the U.S., it had experienced double-digit inflation in the 1970s and ’80s. But in keeping with the theme of arbitrariness, New Zealand’s initial target range of 0 to 2 percent wasn’t carefully engineered either; rather, it was the result of an offhand comment made by the head of the central bank in an interview, which he called “almost a chance remark.” Not long after New Zealand adopted its target, so did Canada, and then Australia. As Ball put it, the practice then went “viral,” and eventually the U.S. joined the party — albeit secretly. 

And for a long time, it appeared as if the Fed’s shadow, Kiwi-flavored inflation strategy was more or less working — or at the very least, not obviously inflicting economic hardship on millions of Americans. The Fed brings down inflation by raising interest rates, which usually has the effect of slowing the economy down, cooling growth and heightening unemployment. But for more than a decade after the Fed adopted its 2 percent goal in 1996, inflation remained under control, while gross domestic product growth and unemployment remained stable and pointing in the right direction for a healthy economy:

When things go well, people tend not to ask too many questions. But underneath those rosy topline numbers remained the issue of the empirical reasoning behind a 2 percent inflation target: We didn’t have any. And by the time we got to 2008, the 2 percent inflation target may have left us ill-prepared for the Great Recession. That’s according to some economists, including Ball, who have argued that a higher inflation target would have lessened the severity of the crisis. 

“From World War II until the early 2000s, the Fed had developed a pretty effective way of fighting recessions, that it would lower interest rates, and if the recession didn’t end pretty quickly, would lower interest rates again,” Ball said. “In 2008, they lowered interest rates to zero very quickly, and still unemployment was very high. That meant there was this long, very painful, slow recovery.”

The basic argument for a higher inflation target is fairly simple, and it goes back to Econ 101. When you have a contracting or weakened economy, the Fed likes to cut interest rates to boost spending and grease the wheels of growth. The Fed is limited in how much it can do this, however, because you can’t bring interest rates below zero — at that level, a bank would be paying you to borrow money. But according to a concept known as the Fisher effect, the real interest rate people base decisions off of in their lives is equal to the nominal interest rate (i.e., the listed percentage) minus the expected inflation rate (which, in this case, is equal to the inflation target set by the Fed). So if you have a lower expected inflation rate, you would also have a lower nominal interest rate — and therefore, less space to work with before real interest rates dip below zero.

With this in mind, Ball’s research found that had the Fed targeted 4 percent inflation before the Great Recession, overall economic output would have been considerably higher — and unemployment lower — in the years following the start of the Great Recession. Additional research has found that, under certain conditions, pursuing a higher inflation target can actually improve economic stability. 

Now, adopting a higher inflation target isn’t without its downsides. Kirshner, who supports the move, said the fact that recent price hikes haven’t come down as quickly as inflation doves like himself had expected is something they needed to reckon with. Others have made a slippery-slope argument, saying that raising the target by just a percentage point would beget even more inflation. And there is certainly a political danger in moving the goalposts of inflation, especially at a time when so much policy energy has been spent on counteracting inflation — not advocating for more of it. In a recent talk, Fed Gov. Philip Jefferson said that raising the inflation target would “damage the central bank’s credibility.” That conjures up some pretty gnarly images: If people don’t trust the country’s foremost financial institutions, that could have resounding effects for not just inflation, but the whole economy.

And unlike in Greenspan’s day, Fed officials now provide justification for the 2 percent target — justification which sounds plausible. As Jefferson said in that same talk, the Fed’s decision to formalize the target was based on the idea that “reasonable price stability was desirable, while also recognizing the reality that very low inflation can also be economically costly.” That accords with what economists like Paul Krugman have said, that we should understand the 2 percent rule as the result of a compromise between inflation hawks and doves.

Ball told me that he expects the Fed to continue to raise rates to bring down inflation, under the presumption of getting down to the 2 percent target eventually. But he didn’t rule out the possibility that the bank could secretly choose to adopt a de facto 4 percent inflation rate — essentially recreating the deception that Greenspan engineered decades earlier — so as not to send the economy into a nosedive, while also communicating to Americans that the Fed is serious about cracking down on inflation. 

But at least at the moment, the Fed appears resolute in its quest to bring us back down to 2 percent inflation, as Powell indicated in remarks before the Senate Banking Committee earlier this week. And, like the general state of the economy right now, the notion of “reasonable price stability” remains fuzzy. Despite the fact that it has the potential to affect millions of lives, our war on inflation has a final mission that’s more subjective than not.

“You hear Fed officials or central bank officials talking about, ‘Well, price stability means 2 percent,’” Ball said. “You would think from that, either somebody has sort of scientifically figured out what’s the best inflation rate […] or maybe somewhere in the Bible or the Quran or some text, God said, ‘2 percent inflation is what we want.’ But it’s really kind of a historical accident.”

Three years after the start of the COVID-19 pandemic, remote and hybrid work are as popular as ever. Only 6 percent of employees able to do their jobs remotely want to return to the office full time, according to a Gallup survey published in August. The vast majority of “remote-capable” workers1 want to spend at least some of their workdays at home. When they’re forced to return to an office, they’re more likely to become burned out and to express intent to leave, according to Gallup.

But that’s not all. The pandemic, combined with a strong labor market where workers have persistent power to demand the kinds of work cultures they want, means even more changes could be coming. After years of advocacy, many U.S. states are moving towards mandatory, paid family and sick leave for all workers. Meanwhile, companies are flirting with a four-day workweek in pilot programs worldwide, including in the U.S.

Policies like these have conventionally been seen as good for workers’ personal lives but bad for business. But thanks to the massive, sudden changes brought on by the pandemic, we now have more data than ever, and it shows that assumption is mostly wrong. Overall, policies that are good for employees’ personal lives are, when enacted correctly, good for their work lives, too. In fact, they seem to be good for everyone. The only question is whether we’ll start to see more companies adopt them.

Working from Home

Before the pandemic, just under 6 percent of employees were primarily working from home, but that had tripled to nearly 18 percent by the end of 2021, the most recent year available, according to U.S. Census Bureau estimates. While it’s still a minority of Americans overall, the shift to working from home is concentrated among certain kinds of workers — especially those who once filled downtown offices in cities on the coasts. In general, employees think they’re more productive when they work from home, while managers suspect that they’re not. 

Economists have been trying out who’s right, using a couple different measures. A Harvard Business Review study found in August 2020 that working from home lets knowledge workers concentrate on tasks they think are important and want to do, and less time getting pulled into irrelevant meetings or working on someone else’s project.2 But when worker output can be measured, that’s even more helpful. The federal agency that reviews patent applications already measured worker productivity based on a metric that included actions completed in a specific period of time. A study in the Strategic Management Journal found before the pandemic that workers’ ability to work from anywhere increased productivity by 4.4 percent.

Part of that may simply be that workers are spending more time completing tasks when they would otherwise be commuting: A National Bureau of Economic Research working paper found that employees were working 48.5 more minutes a day during lockdowns in 2020. Another NBER working paper found that workers devote about 40 percent of the time they saved from not commuting to their jobs. Anecdotally, some workers worry they shouldn’t take a sick day for minor illnesses while working from home. 

In fact, working from home could turn out to be better for the company than it is for the workers – or, at least, the situation is more complicated than it may appear on the surface. Workers are generally happier working remotely and report higher productivity and better work-life balance, unless their work creeps into off hours, according to the School of Industrial and Labor Relations at Cornell University. It found that working from home outside of normal work hours is associated with worse psychological outcomes and family conflict.

Working from home instead of an office has other downsides: some people do miss face time with their coworkers and meetings can take a little longer to organize and set up, which is part of the reason hybrid models with some in-office workdays are emerging as the most popular. But all of those problems cry out for the need for new management styles to set boundaries around the workday and let go of some old ideas about “face time.”

Instead of addressing those problems, many managers have been reluctant to believe the positives of working from home and major companies have persisted in return-to-office policies. The drive seems largely driven by managers who are struggling to the new work environment as well: In the beginning of the pandemic, 40 percent lacked confidence they could manage their employees remotely, according to another study from the Harvard Business Review, though some managers have adjusted better than others.  

Four-day workweeks

A pilot program introducing the U.K. to a 32-hour workweek wrapped up last month. Sixty-one participating companies spent six months experimenting with a four-day workweek. All but five will continue it into the future. Surveys taken after the pilot found employees  were less stressed, slept better and were better able to maintain work-life balance, according to reporting from The Guardian. The surveys also found that sick days fell by two-thirds, and turnover fell by more than half. Overall, the companies reported no drop in productivity, and even an increase in some cases. 

Even before and then throughout the pandemic, some firms around the world began experimenting with shorter workweeks. In these four-day pilot programs, employees keep their pay and pledge to keep their productivity up to what it had been before the trial. They’ve found, in general, that workers are happier, less stressed and also get at least the same amount of work done as they did working five days. 

Companies in Iceland, Belgium, Spain, Japan and New Zealand are experimenting with shorter work weeks, and 38 companies in the U.S. and Canada are undergoing a similar trial. This year, Maryland is considering legislation that would encourage employers to experiment with a four-day workweek. Fifty-nine percent of Americans support the idea. 

Other than the recent trial in the U.K., most of the reported benefits of the four-day workweek come from anecdotes. Managers have reported some challenges as they figure out how to meet client demand in the new environment. But so far the four-day workweek trials have been voluntary, which might mean the companies that choose to do them are more motivated to solve these problems than they would be if the change were forced. An advocacy group pushing the pilots, 4 Day Week Global, argues that the change is possible when managers measure results instead of simply hours worked. 

The five-day workweek in the U.S. is, after all, a relic of a decades-old law that sought to balance worker and employer needs in a completely different cultural and economic context. It was instituted after an era of rapid industrialization, during which factories had demanded much longer days and weeks from their employees. In response, labor organizations around the globe demanded new laws to protect workers. Maybe those limits are simply an outdated relic of that time.

Paid Leave

There’s no federal law in the U.S. mandating that employers provide paid sick leave for their employees. Nearly a quarter of workers — especially low-income workers, often in the kinds of service jobs deemed essential during the pandemic — can’t call in sick when they get a cold or their child is sent home from school with a fever. Under certain conditions, workers are entitled to periods of unpaid leave, but the fact that it’s unpaid can make it a burden to use.

This changed briefly during the pandemic, when federal law dictated that employers provide up to two weeks of paid leave for their workers affected by the coronavirus. That expired at the end of 2020.

The benefits of paid sick leave became clear when the U.S. was trying to stop the spread of a deadly virus. But advocates had been pushing for mandated paid sick leave long before. For the past decade, states have been moving to fill in the gap, and today 17 states have mandatory paid sick leave, as well as a handful of counties and cities including Washington, D.C. This year, at least five states are considering such bills.

It’s not surprising that paid sick leave is better for workers who have access to it. A study in Health Affairs found that state-mandated sick pay led to a 5.6 percent reduction in emergency room visits, indicating that workers able to take paid sick leave were able to deal with health problems before they worsened. And a study from Drexel University also found that paid sick leave mandates led to a 6 percent increase in productivity.

Eleven states require employers to provide paid family and medical leave for longer periods, although not all of those laws have been enacted yet. At least five more states have introduced similar laws or pilot programs this year. These kinds of laws are popular: Eighty-five percent of Americans say workers should have access to paid leave for their own health problems. A 2021 analysis of New York’s paid leave law found that employers weren’t hurt by the mandate, and actually found it easier to plan for employee’s long absences.

Employers seem to understand that many of these benefits are good, since they have long often offered things like flexible work and paid leave as benefits to employees to try to recruit top talent. But that leaves many more workers out. When employers have decided to require return to office, they’ve often framed remote work as “phoning it in” or said that in-person work is good for “company culture” without offering much evidence. When it comes to a shorter workweek and paid leave, many businesses object to the up-front costs, even if they benefit later from worker retention. So far, the evidence of all the potential benefits hasn’t been enough for employers to invest widely in new work cultures. 

Inflation isn’t under control, and we’re heading for a recession. Except, wait: The latest jobs report indicates that the labor market is healthier than it’s been in years. So maybe we’re heading for the fabled “soft landing” as the Federal Reserve tries to curb inflation. Except, wait: That jobs report was too good, which means that the Fed will hike rates even higher — and economic pain is coming.

You’re confused. We’re confused. Who isn’t confused? Economic signals are pointing in different directions, and with every new data release comes a new batch of headlines declaring that our odds of heading into a recession are higher or lower than they were before.

The reality is that everyone is guessing. Let’s not forget that economists are bad at predicting recessions, and the economy is particularly weird right now. Inflation, for example, hadn’t been a serious issue for nearly four decades — but now it’s framing the way everyone is thinking and talking about the economy. Even though it probably won’t make anyone more certain about what happens next, it’s worth trying to understand what the indicators are saying when they’re taken together. 

It’s not a clear story, and there are very different ways to present the data. Here are two possibilities for the next few months, and the evidence that does — or doesn’t — support each scenario.

A strong labor market — and slowing inflation — means we’re heading for a soft landing

This is the most optimistic outlook for the economy in the near term, as it suggests that the Fed will continue to bring down inflation without having to accelerate rate increases and cause too much harm to the economy — particularly as it relates to the labor market — perhaps even avoiding a recession altogether. Put differently, this scenario suggests that we can have our cake and eat it, too, as far as it comes to achieving both price stability and maximum employment.

And it’s not the view of just the sunshine-pumpers to suggest that we’re heading for a soft landing, nor is that outlook, as former Treasury Secretary Larry Summers put it, “at odds with both economic theory and evidence.” The latest data released, for January 2023, shows that inflation has cooled to a year-over-year rate of 6.3 percent1 since its July 2022 peak of 8.9 percent, and yet the unemployment rate has stayed stubbornly low at 3.4 percent, the lowest figure in more than a half-century. 

Typically, when the Fed raises interest rates to counteract inflation (or fears of it), it comes with a tradeoff: a pretty crappy economy. In the 1980s, the central bank took a markedly aggressive approach to combating inflation, raising rates to a sky-high 19 percent to bring inflation down from a mark of nearly 15 percent. This move caused a deep — but arguably necessary — recession, and it’s an episode that has informed the thinking of not just economists and Fed officials in the decades since, but ordinary Americans as well.

But one reason history might not repeat itself is a fundamental difference in the current labor market. You may recall that, prior to the pandemic, the U.S. economy was flourishing. A lot of that had to do with the relative strength of the labor market, as broad-based growth in sectors ranging from health care to construction led to a historically low unemployment rate and improving labor-force participation rate, signaling a boom. And now, it appears that we have recaptured that economy in many ways — replete with a very low unemployment rate and many, many job openings. That’s unlike when the Fed started its ultra-aggressive approach in the late 1970s, when inflation and unemployment were significantly higher, and when the economy had been struggling through a crisis of “stagflation.”

“The labor market is so tight that it’s hard to see how we can experience something like back in the ’80s,” said Fernando Martin, assistant vice president in the research division at the Federal Reserve Bank of St. Louis. “You’re not going to see big increases in GDP growth or anything like that. But unless we start seeing indicators that the labor market starts deteriorating, it’s hard to start predicting a recession in the traditional sense.”

Finally, if you hold that the recent inflation we saw was largely the byproduct of gummed-up supply chains, then there’s even further reason for optimism. Signs point to supply chains having improved since the height of the pandemic, which has potentially contributed to easing inflation and suggests that the Fed can continue bringing prices down without resorting to 1980s-style monetary engineering.  

“The Fed is trying to reduce aggregate demand, but with supply chains repairing at the same time, they don’t need to reduce aggregate demand so sharply that we actually get rising unemployment,” said Carola Binder, a professor of economics at Haverford College. “So I think it does seem possible to have a soft landing — and seems fairly likely, even.” 

Inflation isn’t under control, and the labor market is too tight — so we’re probably heading for a hard landing

Let’s not get too happy yet, though. Several economists we spoke with cautioned that not all of the indicators are as good as they look at first glance, and a recession could still be coming.

The logic behind this is fairly simple: Although inflation seems to be ebbing, it’s not slowing as quickly as the Fed wants. And that really strong labor market could be too strong for the Fed’s liking, since if workers — not jobs — are in demand, employers will be under pressure to raise wages. This could then lead to higher costs for consumers as companies try to compensate, while people also have more money to spend. To make sure that doesn’t happen, the Fed seems almost certain to continue on its rate-hiking journey, which could end up slowing down the economy too much. 

“Inflation has a long way to go by any measure, and I don’t see how you can get inflation down with wage growth the way it is,” said Jonathan Wright, an economics professor at Johns Hopkins University. “And given a fairly tight time horizon, I think the Fed will err on the side of doing too much.”

The argument that economists like Wright are making is that yes, it’s possible for a soft landing to happen — but conditions have to stay pretty much ideal for that to become reality. And Wright said that there’s a lot of room for things to go sideways. There might not be a lot of competition for jobs, for one thing, but the share of people either working or actively looking for a job (62.4 percent in January 2023) is still lower than it was before the pandemic (63.3 percent in February 2020). “What you’d like to see is everyone back in the labor force, but for older workers, it looks like labor-force participation may be permanently lower,” he said. To him, this means that the current trajectory of the labor market is unsustainable — and preventing high wage growth (which could drive inflation higher) will require stronger intervention from the Fed than we’ve already seen.

Another sign that the Fed may soon come in harder, Wright said, is that financial markets aren’t behaving as if the Fed has been consistently hiking rates for almost a year. For example, mortgage rates fell for several weeks in January after rising for most of 2022. They’ve spiked again in the past couple of weeks, but it was a troubling signal for Wright, who said that generally speaking, financial conditions have been “much easier” than they should be given the Fed’s actions — and that could undercut the Fed’s work, prompting them to push for even more aggressive rate hikes in the future.

Recessions can also be hard to see while they’re happening — there’s a reason why the official determination of recessions, made by the National Bureau of Economic Research, is backward-looking. And there are a few clues that the economy could already be weakening. For instance, the industrial production index declined in both November and December and was flat in January, sparking speculation that we’re already in a “manufacturing recession.” Business sales also somewhat faltered in the fall, which could be another reason for pessimism.

Ryan Sweet, chief U.S. economist at Oxford Economics, said that he thinks a soft landing is possible — it just isn’t likely, given how many things have to go right to keep the economy on track. “We could skirt [a recession], but it will take luck,” he said. That doesn’t mean, though, that we’re heading for a deep or prolonged economic decline, like the Great Recession. If a recession does happen, Sweet thinks it would be because the Fed made a “policy error” in hiking rates too aggressively. “Historically, those are mild recessions,” Sweet said. “If the unemployment rate goes up by a percentage point, that means the economy is softening and it will be uncomfortable. But the NBER might not even date it as a recession.”

Of course, if the COVID-19 economy has taught us anything, it’s that we shouldn’t be completely comfortable about using these indicators to make predictions. It isn’t just a feature of the pandemic, either, as economists are notorious for incorrectly predicting when the next recession will come about. That uncertainty has washed over onto our understanding of the economy during the pandemic, as we’ve transitioned from boom, to bust, to potentially too much boom over the past 36 months. 

Another potential danger lies in assuming that all recessions look the same and that our not-so-trusty indicators can tell the full story, even when it appears they’ve accurately predicted our fate. Martin referred to how one key indicator of recessions that experts look to, an inverted yield curve, “predicted” the COVID-19 recession — but months before anyone knew of the virus’s devastating capacity. 

“If you look at the data, well, a recession happened,” Martin said. “But you know, [the inverted yield curve] had nothing to do with anything. That was a completely unexpected shock and a cautionary tale of indicators and predictive power.”2

Maybe the lesson is that we’re flying blind, or that our navigation of the economy can only be so precise. No matter the outcome, though, we’ll know in the coming months and years whether our economic engines have made a hard — or soft — landing on the proverbial tarmac. 

Nothing is certain in this life, but the United States will definitely need to raise its debt ceiling later this year to avoid a potentially calamitous debt default. On one side, President Biden and Democrats want a “clean” debt limit increase, while Republicans want future decreases in spending included in any deal.

To avoid a default, the Republican-controlled House and the Democratic-controlled Senate and White House will have to reach a compromise. This is neither new nor unprecedented. There have been 20 votes on increases to or suspensions of the debt ceiling since 2001, 12 occurring under a divided government. In each case, a deal was reached. 

Some in the GOP have made it clear that they won’t vote to raise the borrowing limit this time, even if they can enact all the cuts they desire. And not one Republican sitting in the current Congress backed a debt ceiling hike in the last Congress — although a few GOP senators voted to bypass a filibuster.1 However, about 3 in 5 Republicans currently in Congress have at some point voted for a deal that included a debt ceiling increase. So even though Republicans have been less likely than Democrats to back legislation that included raising or suspending the debt ceiling, some are still willing to do so. 

Who are these Republican senators and representatives? In what facets of the party can a compromise be reached? We dug into the voting history and ideological makeup of congressional Republicans to find out.

House Republicans

Here at the start, House Republicans appear united in their opposition to a clean debt ceiling hike, whether we’re talking about the most right-wing or more centrist members. We looked at the final roll call votes on the 20 bills that included a debt ceiling increase since the start of George W. Bush’s presidency and calculated how often current members of the House supported them. Unsurprisingly, the more conservative a member’s voting record, the less likely they’ve been to vote yes on a debt limit hike, as the chart below shows. (Although we must remember that some legislation simply raised the ceiling while other bills contained many additional components.)

Still, this finding isn’t necessarily a shock considering the GOP’s traditional commitment — at least rhetorically — toward reduced spending and less government. But when thinking about who might sign onto a deal, the members closer to the top left corner of that chart may be most inclined to support increasing the borrowing limit. Some well-known moderates, like Pennsylvania Rep. Brian Fitzpatrick and California Rep. David Valadao, fall in this zone. There are also a number of long-tenured members with less conservative records and a past tendency to back debt ceiling hikes, including the two most senior members of the House GOP: Kentucky Rep. Hal Rogers and New Jersey Rep. Christopher Smith, who were both first elected in 1980.

But some representatives who aren’t necessarily described as “moderate” also have moderately conservative voting records and have shown a willingness to vote for debt ceiling increases. One high-profile example is Rep. Elise Stefanik of New York, a Trump ally who has voted for debt limit hikes four times in six opportunities. Now, Stefanik voted for all three increases during Trump’s time in office and, like all other current Republican members, didn’t back either deal during Biden’s tenure so far. Yet in her first term, Stefanik did back GOP Speaker John Boehner’s final debt ceiling agreement with President Barack Obama.

Many of the Republicans whose voting records suggest they are most amenable to raising the debt limit belong to the Main Street Caucus, a group of nearly 70 legislators that describes itself as the home of “pragmatic” conservatives. Out of the 46 members who have taken a vote on the debt ceiling, 10 have backed a hike at least half the time, including Fitzpatrick, Stefanik and Valadao. And while we don’t have any voting records for those elected last November, 18 other members of the MSC are freshmen who could be open to voting for a debt ceiling deal: Roughly one-third of them hail from potentially competitive House seats, and we know that, broadly speaking, members from competitive seats tend to have more centrist voting records.

Meanwhile, on the other end of the spectrum, members of the very conservative Freedom Caucus are unlikely to back a debt ceiling agreement unless it involves deep spending cuts — an arrangement that Biden and Democrats probably won’t accept. We don’t have a public list of the group, which keeps its official membership hush-hush, but it has 40 to 50 members. Most of the ones we could readily identify have never voted for a debt-ceiling increase, although around two-fifths of its members have only been in office since 2021, a period when no Republican voted for an increase.

Senate Republicans

Senate Minority Leader Mitch McConnell and his GOP Senate colleagues have mostly let McCarthy take the early lead on debt ceiling negotiations. But that doesn’t mean the Senate won’t be an important arena in this process — or a potential obstacle to a deal. Here, too, one party has a narrow majority, as Democrats only hold 51 seats to the Republicans’ 49.2 That slim edge makes for close votes on legislation, but also means that Democrats are well short of the 60-vote supermajority needed to invoke cloture to move legislation to the Senate floor for an up-or-down vote. That means both past Senate votes on debt ceiling legislation and past votes on cloture are of interest for us.

We found that support for legislation that includes a debt limit hike was even more clearly related to ideology, based on roll-call votes. The average senator has been in Congress a longer time than the average representative — including time as a representative before moving up to the Senate. Additionally, while the Senate’s consensus-oriented tradition has ebbed in modern times, we still tend to see debt ceiling legislation passed with larger majorities there than in the House. As a result, the current batch of Senate Republicans has, on average, voted yes more often than their House counterparts.

When it comes to which GOP senators are most likely to be involved in passing a debt limit increase, we unsurprisingly start with the chamber’s two prominent moderates: Sens. Susan Collins of Maine and Lisa Murkowski of Alaska. Collins has voted for three-fourths of debt ceiling bills since 2001, while Murkowski has voted for nearly 7 in 10. But in looking for other potential votes, some other names may surprise. Sens. Kevin Cramer of North Dakota and Mike Rounds of South Dakota have supported two of every three debt ceiling bills that have come before them. And indicative of his common involvement in dealmaking on the debt ceiling, McConnell has supported 65 percent of the bills that have come before the Senate since 2001.

But as the use of the cloture motions has increased in recent years, arguably the more important part of the equation in the Senate is overcoming a filibuster to bring debt ceiling legislation to the floor. If nine Republicans don’t agree to go along with 51 Democrats on a cloture vote, a bill won’t receive an up-or-down vote on passage. Take what happened in October 2021, when Democrats had 50 senators3 and a majority through Vice President Harris’s tie-breaking vote. Democrats and Republicans agreed to a short-term debt limit increase, and 11 Republicans voted with the entire Democratic caucus to clear the 60-vote hurdle to move the bill to the floor, where it passed 50-48 on a party-line vote with two GOP absences. But three of the 11 Republicans who helped make that happen retired ahead of the 2022 election, leaving just eight GOP senators in the chamber who voted for cloture back then.

Here, too, many of the usual, more moderate suspects, like Collins, Murkowski and Sen. Shelley Moore Capito of West Virginia, have voted for every cloture motion involving the debt ceiling that’s been before them in the 21st century. Party leadership has also been willing to do so: McConnell voted for every cloture motion in that time, while South Dakota Sen. John Thune (party whip) and Wyoming Sen. John Barrasso (conference chairman) voted for cloture in six of seven cases. If there’s a cloture vote this year, it’s unclear who else might join the eight who backed it in October 2021. If electoral considerations come into play — and when don’t they? — it could be someone like Texas Sen. John Cornyn, who isn’t up again until 2026 and has also voted for cloture six of seven times. At the same time, Barrasso is up in 2024, so he may have reason to be hesitant to help advance legislation this time around.

But maybe it won’t come to that. Back in December 2021, the Senate passed a one-time carveout to the filibuster that allowed an up-or-down vote on the debt ceiling. That demonstrated a flexibility with the rules that could come in handy if the clock is ticking down to debt default. Granted, to get that carveout the Senate had to successfully invoke cloture on the legislation enabling it. But most of the same group of senators who voted for cloture on the October 2021 deal also voted for it on that bill, as did Iowa Sen. Joni Ernst (the GOP’s policy committee chair), North Carolina Sen. Thom Tillis, Mississippi Sen. Roger Wicker and Utah Sen. Mitt Romney, whose otherwise moderate voting record hasn’t included any support for any debt ceiling legislation.

We’re far from knowing just what a debt ceiling deal will look like. And the actual components of the bill, the give and take by both sides, will help determine how amendable Republicans are to voting for the legislation. But looking back at previous votes on the debt ceiling, we have some idea of who is most likely to support raising the nation’s borrowing limit.