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.