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Thursday, September 27, 2012

What. A. Shock.

Quantitative easing--the process by which the Fed has attempted to boost the economy by printing money to buy securities, and such--is a regressive tax on those with lower incomes.

But it's a boost for the rich, so Ben's got that going for him, which is nice.

Last month, the Bank of England issued a report that must have made Fed chairman Ben Bernanke squirm.

It said that the Bank of England’s policies of quantitative easing – similar to the Fed’s – had benefited mainly the wealthy.

Specifically, it said that its QE program had boosted the value of stocks and bonds by 26 percent, or about $970 billion. It said that about 40 percent of those gains went to the richest 5 percent of British households.

Many said the BOE's easing added to social anger and unrest. Dhaval Joshi, of BCA Research wrote that  “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it."


Here's a link to the Reason piece referenced in the article. Not a big fan of Reason as a whole, but the analysis here is sound.

It won’t be a surprise to read conservatives lambasting this as unconventional monetary policy meant to help re-elect President Obama. And inflation hawks have already started screeching. But the loudest cry of “for shame” should be coming from the Occupy Wall Street movement.

Quantitative easing—a fancy term for the Federal Reserve buying securities from predefined financial institutions, such as their investments in federal debt or mortgages—is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality formed by crony capitalism. And it is hurting prospects for economic growth down the road by promoting malinvestments in the economy.

How is the Federal Reserve contributing to regressive redistribution, income inequality, and manipulated markets? Let’s flesh this out a bit.

Last month, Bernanke said that quantitative easing had contributed to the rebound in stock prices over the past few years, and suggested this was a positive outcome. “This effect is potentially important, because stock values affect both consumption and investment decisions,” he argued, apparently under the belief that the Fed has a third mandate to support rising stock prices.

This is ironically a trickle down monetary policy theory, where rising stock prices mean more wealth and more consumption that trickles down the economic ladder. One problem with this idea is that there is a gigantic mountain of household debt—about $12 trillion worth—that is diverting away any trickle down. An even worse assumption is that the stock market really reflects what is going on in the real economy.


If we had a news media (as opposed to high-production value fanzines) interested in fulfilling their functions as the only private businesses protected by the Constitution, they might ask the President--allegedly the tribune of the little guy--about the hammering effect of such a policy.

 But we don't.

4 comments:

  1. I wish those who are so alarmed about "redistribution" ("Redistribution is Theft!") would wake up and notice these things. If it's theft when it flows from the rich to the poor, isn't it also theft when it flows from the poor and (shrinking) middle class to the rich?

    Or are the 0.001% Just Special™ that way?

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  2. It doesn't behoove anyone to raise this non-issue. Especially if you want to toady up to rich people, or are worried about your investments.

    The problem is, some redistribution is theft, and some people are too enamored of Caesar's truncheon. The trick is pointing out it isn't all theft, and that Julius needs to mind his Ps and Qs.

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  3. Ah, the "shut up or you won't get your slice of the pie" argument. Got it.

    "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" -- Upton Sinclair

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  4. The problem is, Bernanke's plan is likely to lead to "a rising tide swamps all boats" scenario, but we can't question the experts.

    I've seen the Sinclair quote before (didn't realize it was him), but I'm memorizing it now.

    It explains so much of our current morass.

    ReplyDelete