Financialized Classification Systems and Public Policy: An Interdisciplinary Approach to Crisis Response

Abstract

We utilize classification systems research to examine the disproportionate impact of COVID-19 on marginalized communities and the failures of policy makers to adequately respond to those most in need. Classification situations are individual positions within the market, generated via the mass collection and aggregation of individual financial and behavioral data, that are used to categorize people into price-differentiated opportunities. In a financialized economy, where profits are increasingly accumulated through financial channels, thereby entrenching the role of financial institutions and motives at the center of economic activity, one’s classification situation operates to maximize value for shareholders. Importantly, in a neoliberal economy, where the logic of the market is used to guide social and political policy more broadly, classification situations are the mechanism by which individuals are allocated resources, opportunities, hardships, and other socio-political economic outcomes. In this paper we argue that the fiscal and monetary responses to COVID-19 were designed to support financialized interests and, as a consequence, the resources and protections of the state were allocated not to those most at risk but, rather, to those whose classification situation promised a stronger return on investment.

KEYWORDS: :

• Financialization
• classification systems
• interdisciplinary
• COVID-19
• public policy

JEL CODES: :

• B52
• B55
• Z13

Notes

1 For example, people analytics in human resources, insurance rates, Compas assessments within the judicial system.

2 We define social provisioning in line with Fred Lee (2018, p. 1) as ‘an emergent system of social-economic activities that generate an array of surplus goods and services (over what is used up in production) needed to sustain households and their social relationships, and thus society as a whole’.

3 Weber (1968) and like-minded theorists defined one’s class situation as the utility of an individual’s social, human, and cultural capital within the market economy. In this view, access to positive life chances were the result of the differential valuing of individual resources by the market.

4 Research has repeatedly shown the way in which pay day lending limits one’s life chances. For example, Creola (2002) found that payday loan customers were susceptible to exploitative practices because they ‘lack access to traditional forms of credit’ (p. 7). Meanwhile, Gathergood et al. (2019) and Skiba and Tobacman (2019) found that payday loans lead to increases in defaults as borrowers were more likely to exceed bank overdraft limits and suffered reductions in cash flows as a result of the loans.

5 According to the Economic Policy Institute (EPI 2020) labor productivity and compensation generally grew together between 1948 and 197—productivity increased 118.4% while compensation grew 107.5%.

6 By April 17th, 2020, employment had fallen 38% for low wage earners compared to 25% and 12% for middle and high wage earners respectively. By June 3rd, 2022, employment for low wage earners was still 25% below pre-pandemic levels compared to a 12% decline for high wage earners and 1% increase for middle wage workers (Opportunity Insights, 2022).

7 In September of 2020, they committed to these low interest rates and quantitative easing policies until inflation had risen above 2% (Federal Reserve, 2020e, September 16). In March 2022, the Federal Reserve began increasing interest rates and by August 2022, interest rates had risen to 2.33% (FRED 2022).

8 In the months following the onset of the crisis, the Federal Reserve increased their balance sheet holdings of Treasuries by $500 billion and of agency MBS by $200 billion (Federal Reserve, 2020c, March 15).

9 Through the CPFF, the Federal Reserve purchased commercial paper directly. Through the PDCF, the Federal Reserve provided short term loans to primary dealers. The MMLF ensured mutual funds could meet withdrawal demands to prevent an overall run on those funds. All three programs ceased operations on March 31, 2021.

10 The PMCCF and SMCCF involved the Federal Reserve purchasing new bonds and loans issued by corporations as well as corporate ETFs. The TALF saw the Federal Reserve expanding the types of asset-backed securities to include auto loans, equipment leases, and credit card loans. The Main Street Lending Program involved the Federal Reserve purchasing portions of loans made by depository institutions to small and medium sized employers.

11 These payments were graduated based on income, with married households earning up to $198,000 eligible for the full amount.

12 We limited the tables to business types that received the largest amount of loans or were otherwise theoretically interesting, such as independent contractors and limited liability partnerships. Business types that were not included in the tables due to the relatively small volume of loans made include various types of nonprofit organizations, cooperatives, trusts, professional associations, employee stock ownership plans, and joint ventures.

13 An LLC is a type of business structure that combines characteristics of a corporation with that of partnerships or sole proprietorships. The owners of the company are protected from personal responsibility for debts and/or liability in much the same way corporate shareholders are, while business income is passed through for tax purposes in much the same way as a partnership or sole proprietorship—LLC income is taxed at the personal income tax rate only, rather than double taxed at the corporate level and then again at the personal level (IRS, 2023b).

14 Subchapter S Corporations are a special type of corporation in which the shareholders ‘report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates’ (IRS, 2023a). In this way, the income generated in an S Corporation is only taxed once (at the personal level) rather than twice (at the corporate level and then again at the personal level) in a similar way to a LLC, sole proprietorship, or partnership. There are certain restrictions on what types of organizations may be listed as S corporations, a key one being that they are limited to a maximum of 100 shareholders.