The Emperor is Buck Naked…
The Brookings Institution is a nonprofit public policy organization based in Washington, DC. Our mission is to conduct high-quality, independent research and, based on that research, to provide innovative, practical recommendations that advance three broad goals:
- Strengthen American democracy;
- Foster the economic and social welfare, security and opportunity of all Americans; and
- Secure a more open, safe, prosperous and cooperative international system.
- Mission of the Brookings Institution
By J.M. Hamilton 6-12-2015
Wage and wealth inequality have become hot button issues for both political parties, leading up to the 2016 race. Aside from free trade agreements, and trickle down tax policies, trickle down monetary policy (i.e. flooding the markets with highly inexpensive debt/liquidity) – from Reagan/Greenspan forward – has become one of the largest single contributors to rising U.S. wage and wealth inequality. To such extent that the former Fed Chairman, Mr. Bernanke, felt compelled to write about it, w/in his Brookings Institute blog. The former Chairman notes:
The claim that Fed policy has worsened inequality usually begins with the (correct) observation that monetary easing works in part by raising asset prices, like stock prices. As the rich own more assets than the poor and middle class, the reasoning goes, the Fed's policies are increasing the already large disparities of wealth in the United States.
From there, however, Mr. Bernanke goes onto disassemble, rationalize, and provide excuses for the continuation the very monetary policies that have helped crush the middle class, led to divergent economies (Wall Street uber alles, at the expense of Main Street and manufacturing), and has stolen from middle class and retirees savings accounts – and transferred interest income to those least in need, the Wall Street banks, shadow banking, and private equity robber barons. But don’t take my word for it… Fed officials have gone so far as to engage in charity work, out of recognition that Federal Reserve policy has magnified and amplified inequality.
In the end, Mr. Bernanke says further study on monetary policy’s impact on inequality is needed, and, either way, Fed monetary policy should not be influenced by inequality.
Monetary policy is a blunt tool which certainly affects the distribution of income and wealth, although whether the net effect is to increase or reduce inequality is not clear. More research will be needed to untangle and measure the many channels through which these effects are transmitted. But the (uncertain) distributional impact of monetary policy should not prevent the Fed from pursuing its mandate to achieve maximum employment and price stability, thereby providing broad benefits to the economy.
Written like a man in the pay of two hedge funds, and on the Wall Street speaking circuit.
There is perhaps limited, or little, doubt that monetary policy that magnifies wealth inequality, and wage inequality, is a direct threat to one half of the Fed’s, alleged, mandate: Maximum Employment. The reality is the Fed’s true mandate is to be a highly useful tool for Wall Street profits, and the speculative/moneyed class.
The Feds easy money policies have fueled financial engineering, M&A, Wall Street speculation, private equity chop shops, and formation of monopolies and cartels: All well known for their employment killing capabilities. Nothing quite makes a stock analyst drool like M&A activity, and the words “synergy,” and “cost savings.” Synergy and cost savings at the expense of labor and a living wage, crushes the American Dream for the 99%. Synergy and cost savings (i.e. job cuts) are financed by a fire hose of Fed liquidity.
That Mr. Bernanke’s monetary policies, by his own admission, work at cross-purposes with the Brooking Institute’s mission… well, surely, the irony is lost on no one. In addition, growing wealth inequality, thanks to Fed largesse, is often used to subvert our democracy.
J.M. Hamilton has absolutely nothing against wealth or striving to do better. It’s the American way. The manner in which wealth is accumulated is another story. If wealth is obtained by inventing, say a lifesaving drug, than more power to you and the millions, perhaps billions, that follow. But if billions are accumulated through: monopoly power afforded by the government; a rigged taxed code; monetary policy run amok – leading to massive financial engineering and layoffs; withholding supply on a drug/product with inelastic demand (so as to jack up the price); obtaining free trade agreement advantages behind closed doors; and regulatory capture – in short, the crony economy (aka rent seeking behavior/aka strategies employed by the elite and Big Pharma on a daily basis) – well, there are very few citizens in favor of this path to financial success.
Unfortunately, financial engineering, M&A, and consolidation/combination within entire industries – fueled by the Fed’s/Central bankster’s easy money policies – have become the easiest means by which to obtain wealth (for an elite few). All at the expense of Main Street, the middle and poorer classes, and United States’ fiscal health.
But let’s give the devil his due: Congratulations, Mr. Bernanke, you just completed Step One of the Twelve-Step program, admitting the Federal Reserve has a problem. Only eleven more steps to go.
Our Corporate run news media is replete with stories where the wealthy have “done well,” and donated large sums to charities and educational institutions that are often, already wealthy beyond measure.
One gets the feeling from these news stories/puff pieces that we are to acknowledge and show our gratitude to the robber barons for their generosity.
But at what price to society, our nation, and our children, comes such generosity?
One recent notable gift was from Hedge Fund operator, Mr. John Paulson. The same Mr. Paulson, who donated $400 million to Harvard, and the same Mr. Paulson who was caught up in a scam with Goldman $achs, during the heart of the financial crisis. In a deal known as ABACUS , Mr. Paulson rigged the deck, or a cache of CDOs/MBS at the residential market peak, and shorted same through a synthetic derivative product created by Goldman. The deal is said to have netted Mr. Paulson a cool billion, and cost the unwitting counterparties same. Goldman $achs later paid a half billion dollar fine for its role in the matter… just another cost of doing business (backstopped by the American taxpayer).
Mr. Warren Buffet was recently in the news for donating billions to the Bill and Melinda Gates Foundation; Mr. Buffet, of course, is known for running Berkshire Hathaway, and is one of the wealthiest men in America. He also has come out against a minimum wage increase, at a time when we have a considerable number of working poor in America (who are so underpaid that they are dependent upon the state in order to exist).
Now, Mr. Buffet’s refusal, along with other major business owners and management teams, to pay a living wage means that Berkshire’s bottom line, or profits, receives a direct subsidy from our government, every time state and federal authorities step in and provide assistance to the working poor (i.e. underpaid workers). But the subsidy to Mr. Buffett’s profits doesn’t stop there, because many of Berkshire’s businesses, perhaps all, pay at a tax rate (if any taxes are paid at all) considerably well below what Mr. and Mrs. John Q. Middleamerica pay. That is to say, the remnants of the middle class - Mr. Buffet is busy shorting - often pay at a considerably higher tax rate in order to make up for the revenue shortfall that Berkshire Hathaway, and other elites, dodge paying.
Mr. Buffett has acknowledged as much.
The government in turn, is overburdened with the working poor, and Berkshire’s, et al., refusal to pay taxes at an equitable rate. Meanwhile, Berkshire becomes exceptionally wealthy, via: M&A; the formation of monopolies, oligopolies, and cartels, within its portfolio; and through gambling in derivatives and swaps products (much of this financed by the Fed’s easy money policies, and a derivatives and swaps market backstopped by the government). As a result, Berkshire’s economic, and therefore political, power grows exponentially. The 99% often live from paycheck to paycheck, and the 1% take home nearly all the nation’s income and accumulate the nation’s wealth, disproportionately.
When Mr. Buffett, or other plutocrats, donate to charities (or purchase the Magna Carta), from profits raised on the backs of the working poor, or by exploiting the tax system, or via monopolistic pricing power (all at the expense of the nation)…. We are supposed to applaud, and yell out enthusiastically, “Three Cheers!”
Meanwhile, nearly one in four American children are born into poverty.
The former Fed Chair says monetary policy is a blunt tool. Au contraire… J.M.H., while acknowledging the bluntness of the instrument for the 99%, has also come to believe monetary policy is a very surgical tool, that enriches less than one percent of the population with finite precision.
The Brookings Institute should be appalled.
P.S.
Two out of four branches of government, possibly the branches with the greatest amount of power, The Federal Reserve and SCOTUS, are run by politicians, who are not democratically elected. For the sake of America and her economy, it’s time to bring democracy/pluralism to the Fed and SCOTUS.