STAFF NEWS & ANALYSIS
Kidder! Could Central Banking Contribute to Income Disparity? Fed Investigates
By Staff News & Analysis - June 04, 2013

The Fed and Inequality … Is the Federal Reserve a driving force behind the post-recession growth in inequality? It's a provocative idea, voiced by writers including Neil Irwin and Robert Frank. It is certainly true that inequality, in terms of both income and wealth, has widened since the recession. A study by the lauded economist Emmanuel Saez of the University of California, Berkeley, found that the top 1 percent of earners have accounted for all of the income gains in the first two full years of the recovery. Their incomes have climbed about 11.2 percent. The incomes of the 99 percent have declined by about 0.4 percent. – New York Times

Dominant Social Theme: What inequality? That's just … life.

Free-Market Analysis: This seems typical of the world we live in.

The US government – leviathan – seems irretrievably broken, yet the mainstream media continues to treat the empire as if it were a republic. Almost every industry now is regulated, controlled and coerced and yet the impression is given by numerous commentators that the US is an outpost of free-market capitalism.

And now the Fed – or individuals within the Fed – are going to examine whether central banks like the Fed are at least partially responsible for growing income disparities. This kind of googly-eyed speculation is the equivalent of every other obvious misapprehension that modern society purveys.

Almost anyone who studies the Fed from an unbiased perspective must conclude it fixes the price and value of money, thus creating both booms and busts. Since those closest to the Fed money spigot have access to the most money "post" bust, they also do better than everyone else.

It is through this simple procedure that income disparities are created. The process is entirely unfair because it is arbitrary and prosperity thus becomes based on whom you know rather than the merit of your particular effort or venture.

What is it that people still need answered when it comes the Fed? The idea that the Fed creates and then perpetuates and expands income inequality is JUST occurring now? Now! The Fed and other central banks like it have been around for nearly a century. The mechanism is very clear, it seems to us. But not to the "googly-eyed" brigade.

Here's more:

A study by the Federal Reserve Bank of San Francisco estimated that the Fed's aggressive policies have shaved 1.5 percentage points off the unemployment rate and have more broadly aided growth. So if the Fed has been propping up the economy, has it also been propping up inequality?

The argument would go something like this: First, many financial experts consider the Fed's policies a driving force behind the surge in the stock market. Since the depths of the crisis, the Dow Jones industrial average has more than doubled, increasing about 16 percent this year alone. Such gains have helped to lift the earnings and the net worth of the half of Americans who own stocks. But the wealthy have benefited disproportionately.

According to recent research by the New York University economist Edward Wolff, the richest 10 percent of households own more than 81 percent of stocks, as measured by value. A second factor is the rebound in the housing market, aided by the Federal Reserve's purchase of about $40 billion in mortgage-backed securities every month.

The effort has helped push down mortgage rates and make it cheaper for millions of families to buy a house or to free up some cash by refinancing. But because of tight credit standards, that windfall has mostly gone to the rich – families that meet the standards to refinance, and investors with enough cash to buy.

Looking at those two factors, there's a strong argument that the Fed stands behind growth in inequality, particularly when it comes to wealth. But the picture is murkier when it comes to income. And experts sounded a note of caution about trying to work out the distributional effect that the central bank's policies might be having more generally.

"I don't think we know that much about it," said Josh Bivens, an economist at the left-of-center Economic Policy Institute, a Washington-based research group. "It would be interesting to have a really determined academic look at the effect on all these asset groups and try to figure it out from there."

That would be interesting to know! But we DO know. We KNOW that price fixing distorts economies and that when people fix prices there are winners and loser. This is elementary economics but when it comes to elementary economics, knowledge seems to go missing.

What don't these "experts" and top economists not know about the results of price fixing? Or perhaps they will continue to pretend that is not what central banks do.

Other experts said they thought the Fed might have reduced inequality, if anything, and that one way or another it would be difficult to tell. "The effect is going to be at the margin if it is there at all," said Joseph E. Gagnon, a former Fed official now at the Peterson Institute for International Economics in Washington. "It's kind of a silly question to ask, though. It's relevant to talk about international trade. It's relevant to talk about technology. It's relevant to talk about regulation. Monetary policy seems far down the list."

Again! These articles are deeply dishonest. Monetary policy is far down on the list? Really? From what we can tell, monetary policy is number one on the list. If money were free-market based instead of controlled by central banking, we'd have a good deal more prosperity and a good deal less income disparity.

Here's how the article concludes:

Speaking at a conference in New York in April, Sarah Bloom Raskin, a Federal Reserve governor, posed the question of whether "inequality itself is undermining our country's economic strength." Her answer was an unequivocal yes. "I am persuaded that because of how hard these lower- and middle-income households were hit, the recession was worse and the recovery has been weaker," she said. "It is not part of the Federal Reserve's mandate to address inequality directly," she added, "but I want to explore these issues today because the answers may have implications for the Federal Reserve's efforts to understand the recession and conduct policy in a way that contributes to a stronger pace of recovery."

So Ms. Raskin, an eminent Fed economist, "explored" the idea that price fixing produces income inequality! We don't have to explore. We already know. Why doesn't Ms. Raskin? A first-year economics student could tell her. Price fixing distorts the economy and creates an ever-tinier pool of "haves" and an ever-larger pool of "have-nots."

After Thoughts

That Ms. Raskin felt the need to examine the issue is merely symptomatic of the virtually bottomless of intellectual dishonesty that surrounds central banking in general and the Fed in particular.

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