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Monetary Policy and the Problem of Oligarchy

  • Posted on: 17 July 2011
  • By: Tony Wikrent

Cross-posted from Real Economics.

During negotiations over the federal government's debt limit this past week, President Obama appears to have achieved a major tactical victory over the Republican ideologues. I use the term "tactical" because in my view, the fundamental economic problem confronting the country remains not only unsolved, but entirely unheeded: after a half century of "neo-liberal" economic reforms, a.k.a., conservative economic deregulation, the economy is now structurally skewed to benefit a new financial and corporatist oligarchy, at the expense of everyone else. What I have striven to do, in posts such asWealth and Income Inequalities are Markers of Oligarchy, is to force the concept of oligarchy back into the national discourse. I cannot claim this as my idea: Simon Johnson's May 2009 article The Quiet Coup was a notable effort at forcing us to face up to the unpleasant fact of a new American oligarchy, and Michael Hudson has been ferocious in a number of recent posts: How Financial Oligarchy Replaces Democracy. So it was gratifying to read Mike Konczal's A Response to Corey Robin on The Political Idea of Monetary Policy:

Corey Robin has a negative response to Matt Yglesias’ argument that setting an inflation target is one of the most important goals progressives and liberals should push for, which lead to an email exchange and a second response.

The economics of monetary policy are one topic. In a balance sheet recession, with a zero-lower bound, a broken financial system and the various commitment problems the Fed faces in these moments, monetary policy is not easy. We discuss many of these economic issues here in an interview with Joe Gagnon, and that’s a debate that has been going on for a while.

Robin notes that fiscal policy is important: “The government hiring people, in other words, is a lot cheaper—and more economically beneficial—than tax cuts or employer tax credits or the stimulus bill.” I agree completely, but let’s say we get a dream infrastructure deal through Congress. If that helps the economy, and the economy starts to pick up, Bernanke and a conservative Fed could use that as an excuse to raise interest rates sooner, which would immediately cancel out that stimulus. Regardless of fiscal policy, monetary policy is never neutral in a moving economy, and thus progressives need an answer.

But Robin, a political theorist (whose book on political fear is fantastic and one of the better arguments for strong unionization that I’ve seen), is more interested in the political theory and ideas surrounding the issue, which I agree needs to be discussed more. Robin:

What both of these reasons [for monetary policy] have in common is that instead of putting money into the hands of people who not only need it but would spend it, thereby stimulating demand and more jobs, they keep (or put more) money into the hands of people who already have it and don’t need to spend it in economically beneficial ways. Presumably because they are, in Yglesias’ eyes, the real movers and shakers of the economy, as opposed to the vast majority of middle- and working-class people or the government that represents them…Share and spread the wealth, in other words, among the wealthy….

If you wanted a purer distillation of the Reaganite temper of our times, you’d be hard pressed to find it in any other notion than this: get more money into the hands of people with money, for they are the truly productive agents in our society, rather than into the hands of the people who might actually spend more money if they had more money to spend….