Why Nobody Will Tell You The Truth

Often, by the end of a given week, I’m exhausted with pretensions to concern about the consequences of policymaking for “Main Street.”

Analysts, pundits, economists and market participants of all shapes and sizes spend a non-trivial amount of the work week indicting Fed policy for exacerbating inequality and, now, for enabling fiscal policy aimed at ameliorating the myriad social inequities plaguing the world’s richest nation.

That underlines the paradox of the post-pandemic policy conjuncture.

The legacy of post-financial crisis monetary accommodation is, in part, the extent to which it inflated the value of financial assets disproportionately concentrated in the hands of the wealthy. While there’s some validity to the “wealth effect” theory (which is just another manifestation of “trickle down”), the benefits of higher prices for financial assets accrued exponentially to the rich. The concentration of ownership (figure below) ensures the dynamic isn’t linear.

Now, though, monetary accommodation is paired with fiscal stimulus which, unlike central bank policy, does have the potential to efficiently effectuate real change, for real people. Rates have to remain low and asset purchases must continue so that the government can “take advantage” of favorable borrowing costs to fund social initiatives. Or so the story goes.

Again, that’s a paradox. The rich will get richer as asset prices continue to soar, but politicians (half of them anyway) will work simultaneously to right various societal wrongs, retool the world’s largest economy and reengineer capitalism so it “works for the people” as opposed to the other way around.

This discussion quickly deteriorates into various circular arguments and the fact that everyone involved refuses to acknowledge the inherent absurdity of quantitative easing as a self-referential insanity loop designed solely to preserve the myth that says the government isn’t simply creating money out of thin air, doesn’t help.

Many critics of monetary and fiscal policy in the post-pandemic world have some things in common: A steadfast refusal to assign any blame to capitalism broadly construed (i.e., capitalism as a humanist religion) and, relatedly, an aversion to castigating four decades of political decisions aimed at removing guardrails from American–style capitalism.

This creates the appearance of cognitive dissonance. Post-financial crisis monetary policy operating without a sufficiently robust fiscal impulse resulted in spiraling inequality, which is bad. Now, monetary policy in the US has an almost explicit social justice mandate — it’s implied in tweaked language unveiled a year ago next month, and it finds expression in all manner of allusions to fostering a “more inclusive” labor market.

Far from cheering this pivot, critics kept criticizing. Those who cared about staying consistent argued that irrespective of what the Fed intends, doubling down using the same tools will just result in more of the same. That is, you can say you want to use your tools to create a more equitable society, but unless you get some new tools, all you’re going to end up doing is making things worse.

Critics who didn’t care about consistency (which is most of them in my experience) simply said it’s not the Fed’s job to worry about inequality. The Fed, those folks chided, shouldn’t “overstep.” Of course, if the Fed isn’t supposed to worry about inequality, then why should they care about the extent to which their post-financial crisis policies exacerbated it? Confronted with that question, critics largely refuse to engage.

The bottom line: It’s fashionable to decry the Fed’s role in perpetuating the wealth divide in America. That’s why people do it. It’s also fashionable to decry efforts by “unelected technocrats” to effectuate change in society. And so, people do that too.

The Fed thus can’t do anything right. Everything is the Fed’s fault. It’s never capitalism or the hyper-hierarchical society capitalism created in America.

This situation isn’t an accident, of course. The fact is, virtually all of the people who weigh in on the subject — from economists to analysts to bankers to investors — sit somewhere near the top of that hierarchical society. The hierarchy is constructed atop the meritocracy myth, which is used to justify otherwise indefensible manifestations of inequality. Blaming monetary policy for everything obviates the need to face an uncomfortable reality: The hierarchy, like almost all historical hierarchies, isn’t natural. Rather, it’s the product of a system which, over time, evolved and optimized around itself in order to preserve the privileges accorded to the people at (or near) the top of the pyramid.

On the fiscal side of things, a similar cognitive dissonance is observable. Economists, analysts, bankers and market participants of all shapes and sizes habitually bemoan the plight of “Main Street.” How many times have you heard the anecdote about the “average” American not being able to afford a $400 emergency medical bill or home repair? In the same vein, how often have you read derisive takes (always cloaked as concern) bemoaning America’s “bartender and waitress economy”? And so on and so forth.

The concern isn’t always feigned, but it is always disingenuous, if only by accident. The number of economists, analysts, bankers and investors who care about the family that can’t afford to buy a new refrigerator is generally proportionate to the percentage of economists, analysts, bankers and investors who know a family that doesn’t have $400 in spare cash. In other words, zero — or somewhere close to it.

Some of those expressing concern may be genuinely disheartened at the increasingly precarious economic prospects of the American everyman/woman, but generally speaking, one’s position at (or near) the top of the social hierarchy precludes empathy because it doesn’t permit one to acknowledge that the hierarchy itself is almost entirely arbitrary. Consider the following passage from Immanuel Wallerstein’s discussion of universalism:

Universalism means in general the priority to general rules applying equally to all persons, and therefore the rejection of particularistic preferences in most spheres. On the one hand, universalism is believed to ensure relatively competent performance and thus make for a more efficient world-economy, which in turn improves the ability to accumulate capital. Hence, normally those who control production processes push for such universalistic criteria. Of course, universalistic criteria arouse resentment when they come into operation only after some particularistic criterion has been invoked. If the civil service is only open to persons of some particular religion or ethnicity, then the choice of persons within this category may be universalistic but the overall choice is not. If universalistic criteria are invoked only at the time of choice while ignoring the particularistic criteria by which individuals have access to the necessary prior training, again there is resentment. When, however, the choice is truly universalistic, resentment may still occur because choice involves exclusion, and we may get “populist” pressure for untested and unranked access to position. Under these multiple circumstances, universalistic criteria play a major social-psychological role in legitimating meritocratic allocation. They make those who have attained the status of cadre feel justified in their advantage and ignore the ways in which the so-called universalistic criteria that permitted their access were not in fact fully universalistic, or ignore the claims of all the others to material benefits given primarily to cadres. The norm of universalism is an enormous comfort to those who are benefiting from the system. It makes them feel they deserve what they have.

America’s economists, analysts, bankers and (most) investors benefit handsomely from the system and are deeply indebted psychologically to the meritocratic myth. In almost all cases, they fail to acknowledge the extent to which, as Wallerstein put it, “universalistic criteria are invoked only at the time of choice while ignoring the particularistic criteria by which individuals have access to the necessary prior training.”

This makes it impossible to truly empathize with the family for whom a $400 emergency expense is an economic death knell. Sad though it may be, the situation is, in one way or another, attributable to the choices someone made, not to a system which dooms a slim majority of society to economic precarity. That’s how nearly everyone you hear from on the economy thinks about things. Crucially, liberal-minded economists (and politicians) will vociferously deny that accusation. They’ll say they do think the system is at fault. “That was the centerpiece of my campaign!,” they’ll exclaim. Or: “I wrote a whole book about our failed system!” But if you ask them to reconcile the admission that the system doesn’t work with their own success in the same system, rarely will you see any economist or politician shrug their shoulders and say “To be totally honest with you, it’s pure luck.”

Progressive economists reckon we should expand the social safety net to prevent people from “falling through the cracks.” Those who don’t identify as Progressives by do identify as Democrats might argue for more limited “handouts” paired with measures that help “level the playing field.” Republicans argue for supply-side reforms which, according to a largely disproven body of theory, provide the middle-class and the poor with ample opportunities for upward mobility through entrepreneurship and hard work.

Those might seem like divergent views, but almost everyone is united in an unwillingness to tell the unvarnished truth. Namely that the system itself didn’t come about naturally. The hierarchy is contrived. The most Progressive, well-educated economist arguing for an expanded social safety net may as well be Stephen Moore (i.e., a supply-side charlatan with almost no academic bonafides at all) on this point.

Only when we admit the arbitrariness of our own lot in life can we truly empathize with those less fortunate. That, I’d argue, is a prerequisite for honest analysis and good policymaking.

But it’s also an impossibly high bar. Such admissions aren’t forthcoming. Not from Democrats, certainly not from Republicans and not even from most Progressives.

Week in and week out, the same economists, analysts, bankers and investors deliver what’s supposed to count as a “diversity of opinion” around the proper course for policymaking. In fact, though, they’re all talking down from the top of a hierarchy they assume is legitimate.

Ironically (and this brings us full circle), Jerome Powell came the closest to admitting the truth during an exchange with a reporter in April.

“I’ve met with homeless people many times. A number of times,” he said, when asked about D.C.’s tent cities. “What you find out is, they’re you.”

He meant that almost literally. And he was right.