By Dan Kervick
Brad DeLong has taper anxiety, and is wondering what the Fed is thinking. He notes that, “real GDP in the U.S. today is and remains at least 5.5% below the path that past history tells us is consistent with stable inflation, and thus with rough balance in the labor market.”
He then reminds the Fed to attend to its responsibilities, given the current political environment:
… when fiscal policy and financial policy are suboptimal it is the responsibility of the Federal Reserve to take proper steps to offset them. Potential harms from accelerating the Federal Reserve’s quantitative-easing asset-purchase policies do not appear major. The actual harm from the disaster of a depressed economy is immediate and dire.
But at this point, does anybody really know what central bank policy would actually be most conducive to getting back to trend growth? Let’s run it down, PowerPoint style, shall we?
- Are Fed asset purchases holding long-term interest rates down? Certainly.
- Are those low rates leading to a healthy situation in the housing market, or to another dangerous bubble? An open question.
- Are asset purchases injecting money into the bank accounts of the affluent and large financial institutions? Yes.
- Are asset purchases also draining interest income from the economy? Yes.
- Are asset purchases contributing to a wealth effect by boosting the prices of equities? Possibly.
- Are asset purchases contributing to a negative wealth effect by suppressing the interest earnings of retirement savings and other long-term assets? Possibly.
- Is unconventional monetary policy the “only game in town” given that both parties are run by corrupt plutocrats determined to stab non-wealthy Americans in the back? Possibly.
- Is unconventional monetary policy creating an illusory distraction that takes the pressure off of the political branches of government and our plutocratic parties, and gives them more political space to stab non-wealthy Americans in the back? Possibly.
- Is the media and punditry obsession with unconventional monetary policy creating dangerous volatility and distortions due to exaggerated fixation on the policy comments of the Fed Chairman, and speculation on the possible impacts of economic indicators on Fed policy decisions? Very possibly, yes.
- Is unconventional monetary policy, to the extent that it is even effective at all, a plutocracy-favoring trickle-down policy that does its work by offering the wealthiest firms and individuals in America a profitable swap of liquidity for their financial assets? Yes.
- Do Mom and Pop on Main Street have any financial assets to sell to the Fed for a profit? No.
- Do unemployed Americans have any financial assets to sell to the Fed? No.
- Do heavily indebted young people have any financial assets to sell to the Fed? No.
- Have professional economists done anything of note in the past five years to help disrupt the plutocracy and bring about significant, transformative change in America. With rare exceptions, no.
- Does an extreme reliance on monetary policy in achieving macroeconomic outcomes empower and strengthen our democracy, or does it shift power to technocrats and elites? Without doubt, the latter.
Oh, and one other random point to note:
- Is Lawrence Summers, a crony capitalist insider and a virtual poster boys for everything we have done wrong in America over the past 30 years, a leading candidate to take over the central bank? Yes.
Cross-posted from Rugged Egalitarianism