Monetary Policy and the Problem of Oligarchy

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….


As I wrote in Wealth and Income Inequalities are Markers of Oligarchy:

Under Smith's British System, the upper classes in society which control the wealth are supposed to know better than the government how to use that wealth to generate yet more wealth, so the government “should get out of the way” as conservatives today like to say.

Even better, Konczal goes on to explicitly raise the issue of oligarchy:

In generic terms, monetary policy balances the relationship between savers and borrowers. For political purposes, it shifts the power between creditors and debtors. Or those with money and power versus those who are in a serfdom of bad debts gone wrong. Given the concentration of wealth at the top and the indebtedness of everyone else, it’s arguable one of the most important political projects out there.

From a series of legal codes favoring creditors, a two-tier justice system that ignore abuses in foreclosures and property law, a system of surveillance dedicated to maximum observation on spending, behavior and ultimate collection of those with debt and beyond, there’s been a wide refocusing of the mechanisms of our society towards the crucial obsession of oligarchs: wealth and income defense. Control over money itself is the last component of oligarchical income defense, and it needs to be as contested as much as we contest all the other mechanisms. . . .


Konczal then delivers a masterly stroke into the heart of contemporary "neo-liberal" a.k.a. conservative economic thinking:

Conservatives think money is something that exists independently and naturally throughout time and that any attempt to change it is, as Reagan said of inflation, “as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” And they are very comfortable working this language as just another form of common sense.

But going back to the Cross of Gold speech, through Franklin Roosevelt’s abandonment of the gold standard and aggressive price targeting, progressives and liberals have had a long-tradition with monetary battles. These battles have disappeared from the agenda, but it needs to come back as we have the right answer: money is a social creation, one that the government has a responsibility to use to stabilizing growth, prices and full employment with a view towards building a future without overheating the system or letting it choke to death from a lack of oxygen.


It is unfortunate Konczal ends his piece here, with the phrase "letting it choke to death from a lack of oxygen" referring to a lack of credit for new economic activity. What we desperately need is a national debate on what kind of a future we want to build. Simply restoring aggregate demand to revive the oil for paper system of suburban mass consumption does nothing to address the problems of peak oil and climate change. As I have argued a number of times previously, the most important economic activity any society undertakes is scientific research and the development of new technologies that allow that society to overcome the limitations of natural resources at the current level of scientific and technological knowledge. Those limitations include the environmental damage caused by the economic processes of resource extraction, production, and distribution of the goods and services humans require to keep alive, healthy, and happy.

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for the commentary and all the great links.