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Fed Helping The Rich Get Richer


Yes, it’s true: it is the policy of the Obama-era Fed to make the 1 percent richer. At Bloomberg, Matthew Klein has a piece analyzing the recent testimony of Janet Yellen in front of the Senate Banking Committee. He comes to the conclusion that many of the Fed’s policies have the rich as their most direct beneficiary:

Toward the middle of the hearing, Yellen said the Fed’s asset purchases and commitment to keep short-term interest rates low boosts share prices, but also noted that many Americans benefited from falling mortgage interest rates and the parallel increases in house prices. But the biggest direct beneficiaries of lower mortgage rates were the well-to-do, who were best positioned to refinance. Although it’s certainly good that many borrowers have been lifted above water on their mortgages thanks to rising house prices, there are good reasons to be skeptical that this will generate much additional spending.

The tens of millions of Americans who own neither shares nor their own homes may have benefited indirectly as relatively wealthy people got even wealthier, but that’s not much different than saying lower taxes on the rich improve the well-being of the poor.

This type of thing is an all-too common feature of blue politics. Despite the egalitarian and ‘social-justice’ impulses of the naive blue liberals at the grassroots, a decaying blue social model inevitably creates more inequality and privilege. Well-connected insiders get sweetheart deals from government, for example, and insurance lobbyists get to wield a veto power over Obamacare’s re-structuring of the American health care system. Most of the so-called green policies we’ve seen are basically ways to channel money from ordinary consumers to political insiders who invest in clever enterprises engineered to suck in subsidies or to thrive in protected, artificial markets created by regulations. Now Obama’s pick for Fed chief wants to add juice the economy by boosting the savings of the rich.

We don’t think the Fed is the villain here; given the economic circumstances it is working in, it may not have had a lot of choice to pursue different strategies. But the larger issue this piece brings to the fore is about the blue coalition more generally. While the populist rhetoric of modern blue politicians is all about redistribution and inequality, the reality is that blue policies entrench privilege.

[Money image courtesy of Shutterstock]

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  • rheddles

    The Fed is the villain. It is hoping to inflate its way out of debt but it is ending up creating such a large pool of debt that the creditworthiness of the nation will be destroyed. It has done everything it can to encourage debt and discourage saving. It threatens not only our financial well being but our moral as well. It is an unaccountable institution of unconstrained power. It is absolutely corrupted.

    • Bruce

      Yes, the Fed is the villain. The money printing allows postponement of the inevitable debt implosion. If we allowed markets to clear and let the bankrupt go bankrupt, this would be over by now and we would have some growth without printing. Instead, the worst is ahead of us.

  • free_agent

    I wonder if the “blue political forces” aren’t really an agent of the upper half (or so) of the middle class. Certainly they don’t object to the sorts of policies described in this article, which improve the lot of the upper middle class relative to the rest of the middle class. And yet they’re furious about “the 1%” and how much money they make … which is the class above them.

  • Anthony

    “It may come as a surprise to some academics, but there is a marked relationship between economic power and political power.” The blue model is not cause of inequities (people tend to perceive issues in accordance with their position in the social structure) that exist between the wealthy and the majority – systemic imperatives create imbalances. “Along with these broad systemic powers, the owning class tends to political affairs in a more direct way. The capitalists occupy public office or see that persons loyal to them do. In that way they can (1) best pursue their own particular interests, and (2) safeguard the capitalist social order in its entirety.” So, the model (blue/red/purple/etc.) does not matter as the preponderance of influence transcends color governing denotation. In denouncing corruption, we ought to understand the politico-economic system that makes it ubiquitous.

    • Kevin

      Insiders don’t want capitalism, they want the favors a regulatory state can bestow on them. Actual competition and creative destruction is what they seek to avoid. It’s the difference between being pro-free market and pro-big business.

      • Anthony

        Not speaking (writing) to insider maneuvering per se Kevin (though at some level it all intimates insider…) but to general substantive outputs of capitalism i.e. material benefits. However, I perceive thrust of your reply. Thanks.

  • JackSheldon

    “Most of the so-called green policies we’ve seen are basically ways to channel money from ordinary consumers to political insiders who invest in clever enterprises engineered to suck in subsidies or to thrive in protected, artificial markets created by regulations.”

    Of course that is also true on non-green policies and artificial markets.

  • gabrielsyme

    Contemporary liberalism has lost track the principle of procedural justice. The end always justifies the means; and so we get endless payoffs to supporters and insiders, identity-group politics, procedural shortcuts and radical dishonesty (which, in the case of Obama and Pelosi, appears to have tumbled into the category of self-delusion).

    If making the rich richer is something that helps the Democrats, so be it- especially if those rich give generously to the party, as Wall Street does.

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