Tim Barker has an excellent piece out today about left debates on whether dovish monetary policy has been bad for inequality, which has me thinking a lot (you should definitely read it).
Some very brief reflections:
- Tim frequently refers to the 2007-2022 period as one block when recounting assessments about the relative benefits of historically low interest rates that have prevailed since 2008 or so. He’s discussing interpretations from others — business reporters, left analysts, central bankers — in this context. But it seems bonkers to me to include that whole period when considering whether QE is on the whole bad or good for the lowest income strata of the US economy (to say nothing of the rest of the world).
- Low interest rates in the post 2008 period did not elicit the same boom in spending we saw in 2020; their pairing with ample support for households in 2020 is reason to investigate more whether/how those policies have made the difference in the corporate response that has disproportionately helped the lowest shares of the income strata, and an endorsement of Keynes’s argument that supporting household spending might be more important than supporting business spending in the midst of a recession.
- Tim’s attention to supply constraints is so important. I’d love another whole post about that, since I think a lot of the problems we’ve seen recently re: inflation owe to businesses putting capital expenditure on ice in the decade or so following the Global Financial Crisis. His points about household wealth rising due to rising home prices is also on point; I’m curious if there’s any work on the rapid gains households made in the housing bubble — very different in its contours — in late 2020-2021 from the one associated with subprime mortgage lending.
- I think all of what we’ve seen is a big reason to dive back into chapter 12 of The General Theory. If firms’ and banks’ (or at least, the biggest ones) responded to low interest rates in the 2010s by investing comparatively more in financial assets than capital expenditure, it’s a big argument for finding strategies outside of monetary policy to motivate growth.
These are just some preliminary thoughts about a provocative topic to read about when I should be getting ready for the first day back on campus after winter break.