As Warren Mosler has often said, there are winners and losers in the use of monetary policy by central banks, since interest rate changes favor either borrowers or savers. Well, now savers are rising up angry. BTW, I have been hearing this anecdotally recently from friends' complaints.
Monetary policy does not seek to redistribute, but cannot avoid it.
If society feels the need to compensate some of the current elderly population for the side-effects of QE, that is a matter for government. We could increase national insurance (not paid by pensioners) to raise pension levels for example or change annuitisation rules.
And if you still worry about the redistributive effects of the Bank’s recourse to QE, you should call for the end of independent monetary policy.Read it at The Financial Times | Money Supply
Monetary policy and redistribution
by Chris Giles
"And if you still worry about the redistributive effects of the Bank’s recourse to QE, you should call for the end of independent monetary policy." This is exactly what MMT does, showing how its replacement by fiscal policy is a more efficient course of action and more effective in meeting public purpose, as well as more democratic and equitable.
Monetary policy under the control of politically independent central banks is both anti-democratic, since it involves redistribution without representation. It is also anti-capitalistic in that it involves a command system of price setting in which a government's monopoly power over currency is transferred to a small group of technocrats that are also "interested men" in Tom Paine's sense. Just how does this make sense economically, politically, and socially?
11 comments:
The elderly population should be protected by a state-earnings related pension and their savings protected by Index-Linked National Savings.
Or as we used to call them in the UK 'Granny Bonds'.
It's the privatisation of the pension system that has increased the uncertainty amongst this part of the population.
And as we know uncertainty closes wallets.
And I would bet anything that most savers would argue that we should have austerity, to punish profligate spenders and debtors who borrowed too much. They don't even realize that this austerity is migrating all the way up the income/solvency ladder, having gone from the debtors to creditors now. What did they expect? You can only tap the insolvent so much before you run out of money to tap, with each "tapping" causing growth and income to contract, forcing the whole process to move further and further up the income/solvency ladder until everyone is broke. The wonderful world of neoliberal economics.
Mike,
I am afraid this is a feature rather than a bug in neoliberal economics.
Monetary policy under the control of politically independent central banks is both anti-democratic, since it involves redistribution without representation. It is also anti-capitalistic in that it involves a command system of price setting in which a government's monopoly power over currency is transferred to a small group of technocrats that are also "interested men" in Tom Paine's sense. Just how does this make sense economically, politically, and socially?
1. Austrians and libertarians would agree with that statement 100%.
2. This statement describes our present system.
3. The economic problems we face were and are caused by this corrupt system which is definitely not the free market.
4. Since we all agree that the present system is corrupt and kleptocratic, why do MMTers propose a system at least as redistributionist, corrupt, distortionist and Kleptocratic as the existing system? Why not support the true democracy of a free market?
Bob, we went through this previously. See Liberal Paradox.
There is also the free market paradox — " left to its own devices, the free market will create as little freedom as it possibly can." To counter this paradox, some external regulation of the market must be imposed, and in civilized society this is the rule of law, which requires legislation, a judicial system, and an enforcement system, i.e., government intervention.
At a practical level, MMT begins with a description of the existing monetary system, which lies at the foundation of macro, New Classicalism notwithstanding. MMT shows how to optimize policy space within the existing system as a matter of economic efficiency and effectiveness wrt goals set by public purpose.
The free market is not a democracy of human beings. It is only a democracy of dollars. In a true human democracy, each human citizen gets one vote and only one vote. In a pure free market system, each dollar is a "dollar vote" and person's power is directly proportional to the amount of money he possesses.
To choose the free market as our means of organizing society is to conclude that money is more important than people, and that popular sovereignty should be replaced by the sovereignty of wealth. Free market society and plutocracy are inseparable.
Civilization, in fact, grows more and more maudlin and hysterical; especially under democracy it tends to degenerate into a mere combat of crazes; the whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.
Democracy is the theory that the common people know what they want, and deserve to get it good and hard.
H.L. Mencken
Bob,
Education can be used to combat that...
Resp,
It's interesting and telling that your economic theories have no room for democracy, Bob Raddis
Anon:
Democracy: Two wolves and a kitten voting on what's for dinner.
In my world, the kitten's right to its own life trumps a majority vote. That is sadly what is missing from the "progressive" technocratic world view. What is even more shocking is that you guys seem to have never heard of these critiques of mob rule, I mean democracy before.
Neil
As I understand index linked gilts were originally designed for the pension industry (in fact you had to be a pension fund to be able to hold them) wouldnt it just be simpler to go back to that?
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