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….I come to this discussion as a political theorist and historian of political ideas.  And what strikes me, in that capacity, is less the wrongness of these arguments than the historically bounded assumptions they reveal.

Those focused on monetary policy are looking at ways to get wealth to those with the most, the “job creators” who lead the economy, in the hope that it’ll encourage them to start the economy again.  More failed supply-side economics when then economy is in pieces.

I don’t think that’s the only or right way to look at it.  So first, Yglesias describes monetary policy not as a mechanism for getting money into rich people’s hands but instead increasing “the cost of hoarding cash.”  That’s a key distinction – we want pressure on the rich and wealth-holders to do something with their wealth. Invest it, build and not just stockpile it.  This isn’t making the wealthy feel happy so they’ll invest, it is putting pressure on the wealthy.  Inflation transfers real resources away from those whose income is money and towards other agents in the economy.  It’s not more supply-side nonsense.

And that gets to Yglesias’ third point, which Robins skips, about why we want an inflation target: “Last, since mortgage debt is denominated in nominal terms, a faster rate of inflation would speed the deleveraging process and let households repair their balance sheet.”

That’s technical language.  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.

If one of your primary political objectives is income defense then anything that increases, as Yglesias puts it, “the cost of hoarding cash,” is a major problem.  Even if that cash is worthless debt from a credit and housing bubble that has collapsed long ago, defending it, no matter what the costs to the real economy, is priority #1.  In this case, monetary policy redistributes from creditors to debtors and thus puts balances between, as Bob Kuttner puts it, “the claims of the past and the potential of the future.”

And rather than historically bounded, I think it needs to be placed in a longer intellectual debate.  It seems like a lot of historians and political scientists are turning their focus to the 1970s as the time when the liberal coalition fully collapsed and conservatism found its legs (see this Rick Perlstein summary in The Nation).  I’ll leave it to others to figure that out, but it certainly seems like the 1970s stagflation was the death of the Keynesian economic agenda.  And in the same way the strong language of justice disappeared from liberal lexicon in the 1960s, the language of inflation, money and the demand in the economy disappeared in the ashes of the 1970s.

Which is a problem.  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.

What is all of your take on this?  Comments very much appreciated, as I’m still thinking this part through.  Regardless of whether or not the Federal Reserve and its monetary policy can work right now, it will in the future and we should spend more time developing these arguments.

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43 Responses to A Response to Corey Robin on The Political Idea of Monetary Policy

  1. Pingback: Mike Konczal Responds to Me and Yglesias « Corey Robin

  2. David Pearson says:

    “…if hoarding cash becomes too expensive because of inflation, capital has plenty of other options…

    The desired effect of inflation is to lower real wages and thus induce employers to create more jobs. The problem occurs if the rich put their money into those “other options” — foreign currencies and commodities — to evade negative real interest rates. Commodity and import prices rise disproportionately in this scenario; they become the “transmission mechanism” between monetary easing and inflation.

    In the above case, real wages for middle-to-lower-income households take a disproportionate hit, while the rich use those “other options” to hedge inflation and protect their wealth. Little domestic employment is created as a result, and income inequality increases. This was part of the “Latin American problem” for decades: stagnant real growth, declining real wages, and a steady erosion of the middle class.

  3. Andrew says:

    I think this is a fantastic post, and one of those that reminds me why I keep coming back here.

    The distinction between “money as a social creation” and “something which exists independently and naturally throughout time” is a very real and visceral one. People with good faith can honestly disagree about which is the “right” way to think about money, and the consequences that flow from this kind of axiomatic structure.

    I don’t have the technical chops to make any helpful suggestions on the financial questions, but I’d like to mention two analogies: the two bases for legal philosophies, Positive Law and Natural Law, and two bases for understanding human sexuality – as a natural, varied, socially mediated experience or a sacred gift from God, only to be expressed in heterosexual marriage. In each case, I think the conservative stand looks to enduring, unchanging rules, while the progressive view is that different times and different people allow for different behavior.

  4. Steve Roth says:

    “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.”

    Better spin: it balances the relationship between financial asset holders and real asset holders.

    Or: balances the relationship between those who took a risk by lending and those who took a risk by borrowing.

  5. Steve Roth says:

    Bernanke explained why he didn’t want to adopt a 3% inflation target: because it might hurt the Fed’s reputation as an inflation fighter.

    Really? 3%??

    (Yes: still shying from the 70s.)

    I think this betrays a confusion and confution that’s widespread, even (especially?) on the left:

    “Stable inflation expectations” can mean two things:

    1. Reliably steady (hence predictable) inflation: “I feel confident that the inflation rate will stay at X% for X years.”

    2. Reliably *low* inflation. This incorporates #1, but is really more accurately termed “stable *price* expectations.”

    They’re quite different, but I find even top economists 1. failing to distinguish which they mean and 2. silently switching between the two even within a sentence.

    If Bernanke could promise — and achieve — three or five years of three- or four- or five-percent inflation, would that damage the Fed’s credibility as an inflation fighter? Or, quite the contrary?

    Would announcing that it’s going to try damage the Fed’s credibility as an inflation fighter? I can’t see how.

    It’s really all about protecting the buying power of bond holders/creditors — that’s all the Republicans care about, and it’s all the financial powers-that-be care about. Funny, that, those two groups caring about the same thing…

    • JW Mason says:

      It’s really all about protecting the buying power of bond holders/creditors — that’s all the Republicans care about, and it’s all the financial powers-that-be care about.

      I agree, absolutely. But check out DeLong today:

      Back before World War I there was a hard-money politically-powerful rentier class: landlords whose lands were let out on long-term leases at fixed nominal rents, coupon-clippers whose money was in nominal government bonds or private bonds or mortgages. They did not benefit from faster economic growth and lower unemployment. They lost significantly from inflation and devaluation. But today there is no such rentier class. Even–especially–the shareholders and option holders of JPMorganChase make much more money with 5% unemployment and 5% growth than with 9% unemployment and 2% growth. …

      It’s easy, and frankly tempting, to scoff at DeLong. But I think this is actually a, maybe the, central sociological question that those of us interested in a progressive critique of monetary policy need to be grappling with: To what extent is there a distinct rentier class, how is it constituted, and how (and how much) does it exercise power?
      Now

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  7. msobel says:

    Every decision is made to favor those who have money. If there is a choice between the wealthy and any other class, it goes to the wealthy. The only choices are between different groups of wealthy.

  8. Kelly says:

    I’m not so sure that fleshing out the finer points of the debate is helpful.
    People who read this blog understand what’s going on and the people who are the political masters don’t care to hear it.
    The ones who need an understandable argument and a response to the tea-baggers and political opportunists are the voters who haven’t permanently thrown in with whatever the Chamber of Commerce branch of the Republican party tells them is the truth.
    What sort of argument can be made available to use? Look at Prof. DeLong’s blog, he keeps a running list of responses to the lies and deceptions that he runs into on a daily basis (his virtual Green Room). That’s the sort of thing I believe should be pursued here.

  9. Jake says:

    “Governments, if they endure, always tend increasingly toward aristocratic forms. No government in history has been known to evade this pattern. And as the aristocracy develops, government tends more and more to act exclusively in the interests of the ruling class — whether that class be hereditary royalty, oligarchs of financial empires, or entrenched bureaucracy. ”

    –From “Dune” by Frank Herbert

  10. illusion says:

    The Federal Reserve is not the master of the price level, only the master of interest rates. The money supply is endogenous.

  11. Mike C. Lark says:

    Government of the oligarchs, by the oligarchs, and for the oligarchs. Sadly, that is what U.S. fiscal & social policy is slouching towards. This is bad business, bad social policy, and frankly immoral. So… where’s the outrage?

  12. I’m sure you’re correct in a macroeconomic sense that Inflation transfers real resources away from those whose income is money and towards other agents in the economy, and that it thus can be a way of getting wealth out of the hands of wealthy hoarders and into productive circulation.

    But I think you are *radically* underestimating how much this prospect frightens regular (non-wealthy, non-economist) people, whose income comes in the form of money (wages) or money (SS and other retirement funds). We’re *petrified* of inflation, and we’re more petrified when, as now, our incomes have gone down (because so many of us are un- and under-employed).

    Any talk of inflation, for us regular people, translates to making the little we’ve managed to hold on to worth even less. For us to be sanguine about even 3% inflation would require us to be sanguine about the prospect of wages and employment going up.

    From your POV as an economically secure economist, this may translate to our fear of the lag time between when inflation starts to press on the wealthy and when they free up their resources. From my POV as a regular person, this fear is perfectly justified — I assume the wealthy will resist, with all their great economic and political power, doing anything that reduces that power.

  13. revelo says:

    Nothing new here. It should be obvious that our society has become heavily tilted in favor of rentiers since 1980. But you have to broaden the concept of rentier beyond that of coupon-clipping heirs to great fortunes. All retirees and disability recipients are effectively rentiers, and we’ve had an increase in the retiree population since 1980. Anyone whose job is not subject to marketplace forces tends to think a rentier. Anyone who focuses on the dream of becoming rich quick via real-estate investments or speculation in stocks, as opposed to the slow process of earning money by labor or entrepreneurship, tends to think like a rentier.

    Most of this petty rentiers don’t really benefit from the current regime, but they think they do, and this is the great accomplishment of the grand rentiers. That is, to convince the thousandaires to vote for policies that primarily benefit billionaires.

  14. JW Mason says:

    Of course I agree with you. And certainly there’s no conflict between pushing for more expansionary & democratic monetary policy, and pushing for more direct jobs programs. Some of us should do one, and some should do the other.

    Maybe it’s just my own hobbyhorse, but for me the balance-sheet argument is clarified if you think of it in terms of income effects, rather than the price effects that people usually talk about. Even if higher inflation/lower real rates doesn’t change anyone’s behavior directly, it increases the real income of net debtors (and reduces that of net creditors). To the extent that net borrowers are liquidity-constrained lower-income households (the extent to which this is in fact the case is an important empirical question), reducing their debt-to-income ratio will boost spending and redistribute income, whether or not it has any effect on incentives to lend.

    Now, a lot of debt is owed by firms, that mostly are probably not liquidity-constrained right now, so that weakens this channel. And there’s also the question of how the kind of inflation the Fed could produce would affect wages. We’re hampered here by a conceptual apparatus that treats inflation, more or less defintionally, as all prices rising equally, but real-world inflations (almost?) always involve a more or less systematic change in relative prices as well. Both the mainstream and Marxists believe that real wages are more or less firmly anchored (by marginal product and the socially-determined subsistence level respectively) but nominal wages do seem to be somewhat sticky. Are they more sticky than the goods in the consumption basket, sufficiently so to cancel out the gain in disposable income from lower real debt-service payments? I don’t think so. But it’s not a firmly grounded opinion — I don’t know of much work on this stuff. (One place to start might be the Keynes of the Treatise on Money rather than the General Theory.)

  15. 300baud says:

    I like where you’re heading, but I think your division into creditors and debtors isn’t subtle enough. In particular, I think it’s worth splitting creditors into savers and rentiers.

    It’s economically handy that people save; it reduces the need for societal safety nets to protect against both unexpected expenses (e.g., car dies) and long-term expected ones (like retirement). That gives other people something to borrow (e.g., for mortgages). Inflation, especially large or erratic inflation) works against that.

    I don’t think savers are the political problem. I think it’s the rentiers, the people who make their living mainly through controlling assets, not through direct creation of value. They are big fans of any sort of stability that allows them to keep extracting income from people doing actual work.

    This distinction is especially important in relation to the Republican rhetoric about job creation. Most private-sector jobs are created by small businesses, not large large ones. Small businesses are generally started and run by people who do productive work, but that’s not true for large businesses. Republicans talk about the policy effects on small-business owners, but structure them to mainly benefit rentiers and their high-level employees.

    • I have a lot of problem with the word & concept of “rentiers”, here in particular, because there are two groups involved: one which is small and powerful, another which is very large and democratically powerful.

      Retired and disabled people are on fixed or high-inertia incomes. There are enormous numbers of them, so they have a lot of votes. Absolutely everyone has someone in their family who is in this group, and their maintenance is a natural, pressing concern for all of us.

      I don’t know if these people count as “rentiers” to economists, but they certainly think like rentiers in many respects. They are extremely inflation-averse, for instance: not because they have assets, but because their incomes *always* trail inflation.

      • 300baud says:

        Sorry I wasn’t clear. I don’t think retirees are our current problem, and I think we should work to construct a world that encourages people to save for retirement.

        I raise the notion of rentiers because I thought Mike’s creditor/debtor split was too crude precisely because of retirees. We need to find a way to treat them and their savings well. But there are a lot of powerful people whose economic mindset is extractive, not productive, which is why the term rentier had some appeal to me.

    • D. C. Sessions says:

      Republicans talk about the policy effects on small-business owners, but structure them to mainly benefit rentiers and their high-level employees.

      Bear in mind that they’ve invented a new definition of “small business” for this very purpose. The Heritage definitions is “Subchapter S corporation.” Including Bechtel, for instance.

  16. Supply side worked says:

    “What is all of your take on this?” Pure, unadulterated poppycock.

  17. 300baud says:

    @Steve Roth:

    My admittedly amateur understanding: “stable” and “low” reinforce one another with regards to inflation, and both help central-bank credibility, which is important for stability. The main thing keeping inflation in line isn’t the central bank; it’s that people have the expectation that inflation isn’t a problem. Bumping up inflation from “imperceptible” (which I think the Fed and the ECB both shoot for) to “noticeable” would be a giant risk; there’s no reason to think people would trust that a) the Fed could keep it under control, and b) that they could put the genie back in the bottle when they thought they were done.

  18. Alex F. says:

    I think progressive should be more ambitious. Instead of the Fed buying government debt from its primary dealers to increase the money supply, open market operations could be conducted between the Fed and each and every citizen.

    Everybody gets a deposit account at the Fed, the Fed credits this account until the output gap is closed.This would be like a helicopter drop on strictly egalitarian basis. In return the Fed gets “taxing rights”, which the treasury has to buy if inflation becomes a problem.

    In short, the Fed gives money to the people and taxes the government. How cool is that?

    In a second step you could declare each Fed deposit account as the only account secured by the state. All other accounts are on their own. If banks take to much risk, they are no more reasons to save them. Banks can just vanish, the money supply wil not contract.

    • grandiosity says:

      Great idea! I love the MMT crowd — way, way out of the box thinking that just might work … and puts things in a new perspective.

    • MaybeNot says:

      Gives the Fed even more power than it already has. Fine in good hands, but really hard to undo in the future. All eggs in one basket for whatever Fed ever says govt should do.

      Checks and balances possible with your interesting system?

  19. Andy Arnold says:

    Monetary policy is something that most of us don’t understand in depth, but we should at least understand that it represents a choice between sets of interests and alternative realities. Money supply is simply another tool of public policy, but since late seventies, it too has shifted bargaining power away from the middle class. A monetary policy that maintains a healthy pool of unemployed workers makes labor markets a buyers’ market. However, monetary policy is but one of a number weapons available to oligarchs. The decline of unions has also shifted bargaining power as have trade policies, open borders (for low skill), and even state employment laws.

    I suspect that one problem with choosing debtors over creditors involves the fact that America is a debt addict credit and a commitment to a tight monetary policy helps feed the habit (i.e. sell US treasuries). In that regard, look at the current budget debate: Interests of bond holders are paramount to any others to whom the US is obligated–like those who have paid into Social Security and Medicare. How is that? The answer reflects the distribution of power; money is social power.

  20. Curmudgeon says:

    With unemployment at 9%, any increase in inflation will kick up consumer prices without any corresponding increase in wages. In high unemployment conditions, wages are essentially denominated in nominal terms and will not rise in time with rising prices but rather after some interval of delay.

    Given the policy preferences of the Fed and ECB, it’s highly likely that they would abandon a higher inflation experiment after prices went up but before wages showed any gains. This will leave consumers worse off than they are today and would prolong depression II.

    If the objective is to force the rentiers to put their vast hordes of cash to some productive use, an idle wealth tax of perhaps 10% per year on any wealth (not income) not invested in economically productive assets would be more effective.

    All of this discussion is, of course, academic because your observation that the entire focus of society has been shifted, since the 1970s, towards protecting the wealth and income of the already wealthy. They will not consent to any redistribution at any cost. Until this problem is untangled, the second depression will not end.

  21. Pingback: The Way We Weren’t: My Response to Yglesias’ Response to My Response to His Response to My Response « Corey Robin

  22. Rakesh Bhandari says:

    JW Mason

    I don’t see how an inflation target works either through balance sheet or income effects. So much of debt is financed by variable rates, which will simply readjust if inflation picks up and counter the stimulative effects.

    Clearly the way in which an inflation target works is by depreciation of the dollar in a currency war and an increase in net exports, abetted by real wage reductions through price inflation.

    This is a politics of reactionary mercantilism masquerading under the benign name of an inflation target; it is also unfortunately a classic politics of Keynesianism. It points not to a better but a more gloomy future, as the Frankfurt School economics Mandelbaum and Pollock immediately recognized.

    Keynesianism will end in tragedy; neo-classical economics is a farce.

    We need another way out of the crisis.

    • JW Mason says:

      On your first point, I’m not convinced that higher inflation would be passed through 1-to-1 as higher interest rates. The mainstream view is that inflation could move real rates only because of the zero lower bound, but I think it’s true more generally: The Post Keynesian argument is that Fisher’s law doesn’t hold, certainly not in the short run and probably not at all. If we think, as both Marx and Keynes did, that long-term rates are essentially conventional and unanchored, there’s no reason for them to respond reliably to inflation. Seems to me that’s what we observe historically – higher inflation is associated with lower real interest rates, at a horizon of years if not decades, and disinflation is similarly associated with higher real rates.

      On your second point I certainly agree that increased exports via depreciation is not a feasible or desirable strategy to raise US employment. But I don’t think that’s the only or even main channel through which inflation could raise demand.

      I think you are absolutely right that the inflation target is bound up with the larger Keynesian (really Lernerian) program of state management of aggregate demand to stabilize an economy in which both the means of production and the financial system remain in private hands. I’m afraid I don’t know Mandelbaum and Pollock’s work – are there articles you can recommend? (Articles are more likely to get read than books.)

      Anyway, I suspect that the real question here isn’t about economics in the narrow sense, but the sociological question of whether rentiers exist as a political interest distinct from capital in general.

      • Rakesh Bhandari says:

        Dear JW,

        You are absolutely right that I am only guessing that given the structure of many loans there would be an interest rate adjustment that would largely counteract the stimulative effect. I am not sure the historical evidence will be a good guide given how many more loans appear to have variable rates.

        Do note the interview linked to in the Original Post. It is openly recognized that QE2 did not do much to get the banks to lend money out, but it is defended in terms of alternative routes: ‘The basic channel is the bond market. The Fed is buying up long-term bonds and that pushes interest rates down on those bonds. That’s what makes it attractive for people to borrow. The market then does some arbitrage. The equity market looks at the bond market and says “oh, well, long-term bond rates are low, so we are going to discount future dividends and profits differently.” This makes the value of stocks more attractive and raises their values. And this encourages businesses to invest. Also, international investors look at rates of return in other countries, and they say “these other countries have higher rates of return than in the U.S.,” so that pushes the dollar down. These aren’t direct channels of monetary policy, but they are linked.’

        QE eases worries about deflation, but it is being defended here primarily in terms of its effect on the dollar.

        For this reason, I am saying that we should think of an inflation target as part of a reactionary program of mercantilism, abetted by a reduction in real wages through price inflation.

        The Mandelbaum and Pollock piece is summarized in Howard and King’s History of Marxian Economics, vol 2. It was written as a review of Keynes’ General Theory. But Stiglitz has already warned of a politics of competitive devaluation or currency wars.

        I am certainly open to revision about this, but I do want to echo Stiglitz’s warning about where we are headed. Our failure to use fiscal policy more aggressively has not only led to needless suffering among those suffering the most already; it may also put on the brink of international chaos.

  23. jeremy says:

    Great post, great comments. I do think direct job creation has much more intuitive appeal to most people than inflation. Talk to regular folks (well, mostly a few older folks now, but never mind); FDR is remembered for WPA, not for taking us off the gold standard. Secondly, the posts that point out that people are scared of inflation and have come to “think like” rentiers are right on. It’s hard enough to get people past the logic of “government must tighten its belt,” much less to get behind a relatively complex (and risky-sounding) macroeconomic argument that inflation is necessary to mobilize savings. For all of these reasons I think that the politics of fiscal expansion through job creation is potentially a much easier demand to organize around, although given the state of progressive organizing, it’s hard to be optimistic. I sort of suspect that in fact the emphasis that some want to give the inflation target is based on a recognition of this political weakness and a hope that Bernanke will step in as a wise technocrat to save the day (in which case, the “priority for progressives” issue seems moot, since we’re depending on him). I’m even less optimistic about this, though, then I am about getting a real grassroots campaign for job creation going.

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  26. Steve Roth says:

    This is a great thread.

    JW Mason: “They lost significantly from inflation and devaluation. But today there is no such rentier class. Even–especially–the shareholders and option holders of JPMorganChase”

    “5% unemployment and 5% growth turns their lead troubled fixed-income assets into silver.”

    I don’t understand why this is true. Suppose that’s the case two years from now, and at the same time inflation’s up to 4% — the bonds’ real return will be down, so their value relative to both real assets and other financial assets will be down. (Now suppose that interest rates are up along with inflation. Another hit to the value of their bonds.)

    “To what extent is there a distinct rentier class, how is it constituted, and how (and how much) does it exercise power?”

    Distinct? Not completely, of course. As Revelo points out, “All retirees and disability recipients are effectively rentiers” A homeowner with a mortgage is a rentier (creditor) and a debtor. but just because there’s such a color as orange doesn’t mean we can’t distinguish between red and yellow.

    How about we call this group “bondholders” instead of rentiers? It doesn’t have that charmingly contemptuous and deprecatory ring to it, but…

    OTOH, 300baud may be right: “I think it’s worth splitting creditors into savers and rentiers.”

    Savers show earned income on their tax return? Or, more than 50% of their income is earned? Or…?

    Illusion: “The Federal Reserve is not the master of the price level, only the master of interest rates.”

    That makes total sense to me inside the MMT world view. But then I think about Volcker’s actions aimed at stomping out inflation in the early ’80s, and I gotta ask myself: was rapidly declining inflation just a coincidence? When he opened the taps in ’83 and the economy (notably unemployment) started turning around *within months,* was it just a coincidence? Doesn’t seem likely. So while MMT seems to provide lots of great (and in some cases even new) answers, I’m still pondering…

    Dr. Science: “Any talk of inflation, for us regular people, translates to making the little we’ve managed to hold on to worth even less. For us to be sanguine about even 3% inflation would require us to be sanguine about the prospect of wages and employment going up.”

    (Also Curmudgeon: “any increase in inflation will kick up consumer prices without any corresponding increase in wages”)

    *Really* good comment. The whole thing. I don’t have a good answer to it given the wage/price dispersion over the last three decades — their failure to move together as they “should” in economic theory. (The Fed stomping on the brakes every time wages go up certainly doesn’t help…)

    The only solution I can think of is changing the measure of “core” inflation that the Fed uses, to ignore wages. (Okay, maybe unless they really take off fast. If they’re just rising a bit faster than prices for a bit, calm down already.)

    Maybe then the Fed can get a reliable reputation as a working man’s inflation fighter. Would take a long time…

    300Baud: “The main thing keeping inflation in line isn’t the central bank; it’s that people have the expectation that inflation isn’t a problem.

    That’s one of two: the other is demand banging against potential supply (whether for goods/services or labor). We’re nowhere near there. So I disagree that “Bumping up inflation from “imperceptible” (which I think the Fed and the ECB both shoot for) to “noticeable” would be a giant risk.” How many instances of wage-price spirals have we seen in the last century? How many instances of low output and high unemployment?

    “There’s no reason to think people would trust that a) the Fed could keep it under control, and b) that they could put the genie back in the bottle when they thought they were done.”

    The problem is not controlling inflation; the Fed knows how to do that. (Though you’re right that people may not think they do. Though current interest rates suggest that the financial community thinks they do.) The problem is controlling inflation without inducing recession (i.e. high unemployment).

    When we’re currently in a massive jobs slump, should our policy be based on avoiding a conjectural *future* jobs slump?

    Alex F: I love your notion.

    Curmudgeon: “an idle wealth tax of perhaps 10% per year on any wealth”

    I love this notion even more, though I think 1% of financial assets should do it.

    http://www.asymptosis.com/want-a-flat-tax-i-got-a-flat-tax-for-you.html

    http://www.asymptosis.com/the-flat-tax-short-version.html

    This is why I’m for higher inflation: it’s very similar in effect to a tax on financial assets (though inflation hits equities less hard or perhaps even not at all.)

    • the wage/price dispersion over the last three decades — their failure to move together as they “should” in economic theory.

      And I’d say that, from the perspective of a Regular Person, that the W/P dispersion has felt like continual stagflation. Prices keep going up, but income never quite keeps up.

      Paul Krugman keeps wondering why the spectre of stagflation grips people so hard, and attributes it to a kind of nostalgia or backward-looking fear. I wonder if it ever *stopped*, really — as all the prodictivity gains of the past 3-4 decades have been sucked up by the uppermost class, people in the lower half or two-thirds of the income distribution have been working harder and getting less. It *feels* like stagflation, even if it isn’t really from an economist’s POV.

      • Steve Roth says:

        “from the perspective of a Regular Person, that the W/P dispersion has felt like continual stagflation.”

        Understandably. I’ve been meaning to post (about) the following from Bill Mitchell, but here’s a preview:

  27. Steve Roth says:

    JW Mason: “On your second point I certainly agree that increased exports via depreciation is not a feasible or desirable strategy to raise US employment. But I don’t think that’s the only or even main channel through which inflation could raise demand.”

    Notably the textbook economics hot-potato effect. If your financial assets are vanishing via inflation, you have incentive to spend them quick — especially on real assets that hold their value, but also on consumption. Both increase velocity (and trade is where surplus comes from, right?), and creating productive assets increases productive capacity.

    “sociological question of whether rentiers exist as a political interest distinct from capital in general.”

    Very true. How about this: The class of pure rentiers is not people; it’s the corporations making up the financial industry (plus the increasingly financialized components of non-financial corporations). Especially the bondholding component. (Corporations are people too, right?) It’s their interests that have come to dominate policy. Can corporations have “interests” independent of, and different from, the interests of their various human components? Obviously yes. Just like an anthill can — even if the anthill doesn’t “think.”

  28. Pingback: On the Contrary » Blog Archive » Winning the Battles, Losing the War

  29. Rakesh Bhandari says:

    The discussants here are missing the fundamental danger of the proposed inflation target. It’s an international problem. Stiglitz has already identified it.

    http://www.guardian.co.uk/commentisfree/cifamerica/2010/nov/01/currency-war-no-winners

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  31. Pingback: Krugman & Konczal on elite wealth defense

  32. Mark says:

    I don’t know too many people who “hoard cash”. What people call “cash” is almost always TBills, repo’d and otherwise, or bank deposits or commercial paper, which means that the surplus money is in fact being put to use in some way – it’s financing a business, a government, or capable of being relent by a bank.

  33. Pingback: $230,000 For a Guard Dog: Why the Wealthy Are Afraid Of Violence From Below « MasterAdrian's Weblog

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