One might be predisposed to thinking that monetary policies aimed explicitly at inflating prices for the assets most likely to be concentrated in the hands of the wealthy would have a high likelihood of exacerbating the wealth divide, especially when those policies are carried out over the course of nearly 7 years and to the tune of trillions of dollars.
Not so, says Ben Bernanke.
Bernanke took a break today from advising PIMCO and, let us not forget, the world’s most levered hedge fund, Citadel, to put his ‘Blogger Ben’ cap back on and explain why, in fact, QE did not disproportionately benefit the rich.
Bernanke starts by conceding that QE inflates asset prices (phew, there for a second we thought reality was going to be completely suspended). However, Bernanke notes that poor people have been getting poorer for a long, long time, so sure, maybe the Fed contributed a little bit, but probably not a whole lot:
First, widening inequality is a very long-term trend, one that has been decades in the making. The degree of inequality we see today is primarily the result of deep structural changes in our economy that have taken place over many years, including globalization, technological progress, demographic trends, and institutional change in the labor market and elsewhere. By comparison to the influence of these long-term factors, the effects of monetary policy on inequality are almost certainly modest and transient.
Got that? Next, Bernanke falls back on the old Keynesian go-to: the smoothing of economic cycles.
Second, monetary policy, if properly managed, promotes greater economic stability and prosperity for the economy as a whole, by mitigating the effects of recessions on the labor market and keeping inflation low and stable.
Yes, “greater economic stability”, much like that promoted by Bernanke’s predecessor whose policies created what was perhaps the most dramatic boom and bust in the history of financial markets. He continues…
Perhaps most important, easier monetary policies promote job creation as well as increases in asset prices. A stronger labor market—more jobs at better wages—obviously benefits the middle class, and it is the best weapon we have against poverty.
We needn’t spend too much time on this ridiculous point because as we’ve shown time and again, the “stronger labor market” is a BLS fabrication which vanishes workers in order to produce goalseeked jobs prints and as for wage growth — there is none. At least not for the 80% of US workers classified by the BLS as "non-supervisors."
Stock prices have risen rapidly over the past six years or so, but they were also severely depressed during and just after the financial crisis. Arguably, the Fed's actions have not led to permanent increases in stock prices, but instead have returned them to trend.
Ok, you've got us there Ben, the Fed's goal was certainly to get stocks back to trend. Thanks for conceding that point.
Finally, Bernanke patiently explains that the idea of ZIRP punishing savers is nonsensical because after all, poor people don’t have savings, so if anyone is getting hurt by lower rates, it’s the rich.
Interestingly, some of the same critics who say that the Fed's policies disproportionately help the wealthy also claim that they "hurt savers" by lowering rates of return. Since the wealthy tend to be savers, and the middle class and poor tend to be borrowers, the assertions that Fed policy helps the wealthy and hurts savers cannot generally both be true.
We would point Blogger Ben to a recent paper by the St. Louis Fed itself (some audacity to contribute to inequality and then write a paper proving what you did, but at least they're honest about it) which shows that in fact, the income divide as certainly grown in the post-crisis years and the widening gap is almost certainly in large part due to Fed policy. In case you do not want to read the entire paper Ben, our summary is here [12].
Incidentally, even the 'very serious' people now acknowledge [13] that the emperor is naked, but as this latest set of ruminations from Bernanke proves, conditions on the ground never stopped anyone in an Ivory Tower from pontificating.
