That’s a common idea. It does not explain well what’s been happening though. The Fed has definitey done things to exacerbate inequality and accelerate it but the system creates inequality without the need for Fed intervention. The post-Depression to 80s period was out of the ordinary for inequality and for prosperity of the working class. Look at some wealth share graphs that span into the 19th century or earlier and you’ll see that the system creates these effects even on gold standards with no Fed.
This is what the US looks like:
Here’s one going further back in some countries:
And here’s a more detailed picture in the US and Canada going to the 1920. Note that given the first one, i equality didn’t explode in the 7-year period between the creatiom of the Fed and 1920. It was far high way earlier:
I believe this fits the rest of the story much much more neatly:
And I think the alternative explanations proposed by various economists that don’t lean on labour power are a distraction that enables continued inequality growth, while we chase geese. Oh let’s push that lever, it’s going to help, a decade passes, inequality worse. Oh let’s push that other lever. A decade passes, inequality grows. Oh let’s push that other … Meanwhile the only solution that has ever worked in creating prosperity for the many is staring us in the face.
BTW I did not downvote but I suspect a lot of people here know these things and just don’t have the energy to explain their view so they just hit the button. I’ve been there. I also used to believe the monetarist explanation.
Well the late 80s in the second to last chart was when the US excluded housing from the CPI, which dramatically cut interest rates. What makes you think the wealth isn’t created via lower interest rates, which came from untethering the CPI to reality?
I don’t think interest rates created that wealth for two reasons.
One is because of contradictory trends - interest rates were higher (3-8%) duding the 1800-1930 period of rising inequality than during the late 80s-onwards period. Also interest rates were lower (0.5-4%) during the 1930-1965 period of decreasing inequality. Rates fell persistently under that level only after the dotcom bubble in 2001.
The other reason is is that given I can see brutal inequality happening during the 19th century without many of the modern financial instruments (and across diff countries), I have to conclude that there’s a more fundamental process that drives inequality. For me the best explanation so far is the process of capital accumulation which inherent to this economic system.
E: If you wanna see another consistent (inverse) correlation, look at how tax rates evolved during these periods.
That’s a common idea. It does not explain well what’s been happening though. The Fed has definitey done things to exacerbate inequality and accelerate it but the system creates inequality without the need for Fed intervention. The post-Depression to 80s period was out of the ordinary for inequality and for prosperity of the working class. Look at some wealth share graphs that span into the 19th century or earlier and you’ll see that the system creates these effects even on gold standards with no Fed.
This is what the US looks like:
Here’s one going further back in some countries:
And here’s a more detailed picture in the US and Canada going to the 1920. Note that given the first one, i equality didn’t explode in the 7-year period between the creatiom of the Fed and 1920. It was far high way earlier:
I believe this fits the rest of the story much much more neatly:
And I think the alternative explanations proposed by various economists that don’t lean on labour power are a distraction that enables continued inequality growth, while we chase geese. Oh let’s push that lever, it’s going to help, a decade passes, inequality worse. Oh let’s push that other lever. A decade passes, inequality grows. Oh let’s push that other … Meanwhile the only solution that has ever worked in creating prosperity for the many is staring us in the face.
BTW I did not downvote but I suspect a lot of people here know these things and just don’t have the energy to explain their view so they just hit the button. I’ve been there. I also used to believe the monetarist explanation.
Well the late 80s in the second to last chart was when the US excluded housing from the CPI, which dramatically cut interest rates. What makes you think the wealth isn’t created via lower interest rates, which came from untethering the CPI to reality?
I don’t think interest rates created that wealth for two reasons.
One is because of contradictory trends - interest rates were higher (3-8%) duding the 1800-1930 period of rising inequality than during the late 80s-onwards period. Also interest rates were lower (0.5-4%) during the 1930-1965 period of decreasing inequality. Rates fell persistently under that level only after the dotcom bubble in 2001.
The other reason is is that given I can see brutal inequality happening during the 19th century without many of the modern financial instruments (and across diff countries), I have to conclude that there’s a more fundamental process that drives inequality. For me the best explanation so far is the process of capital accumulation which inherent to this economic system.
E: If you wanna see another consistent (inverse) correlation, look at how tax rates evolved during these periods.