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 Americanstyle 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.

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17 thoughts on “Why Nobody Will Tell You The Truth

  1. I’ve often thought a person’s politics can be learned very quickly by a simple test. When you see a homeless person on the street do you think “that person made a lot of bad choices” or do you think to yourself “there but for the grace of God go I”? That simple view of our fellow humans seems to affect everything else about our outlook on the world.

    1. What I generally think is… “why is this a possible outcome of an advanced economy?” We produce homelessness on purpose… as a tool of domination, an ever present form of observable torture. “Be a good little drone and do as your told or you’ll become a non-entity with no chance of escape”. When people speak of neo-feudalism homelessness is what makes people happy to be serfs.

  2. H

    I really enjoy your writing when you are an essayist. You are good at it and you also reprint the insightful essays of some others I would never have known about if not for you. Thanks for expanding my world.

  3. All economics is political-economics. Yet, virtually noone in the discipline admits this. Virtually no universities teach it this way. And of course Wall Street will be the last to admit it. We are witnessing the failure, and I think impending collapse, of a failed political-economic ideology.

    The ossification of this ideology has been on display for all to see for a couple decades now. Structural change, usually coincident with geopolitical realignments, is like a natural force of history. And ossified structures are fragile. The US has been tragically, and hubristically, trapped in a failed end-of-history theoretical and ideological framework for far too long.

    Nothing short of a new social contract, and I’d also argue a new global reserve system (end of the petrodollar), is going to resolve the structural crises.

    1. It becomes clearer with each passing year and once-in-a-century extreme weather event that the liberal/neoliberal political economies of the West will need to be reimagined and -structured to address accelerating climate change. Not a question of if, only when. China is going to do what it deems is in its own best interest, but I’d be willing to bet that that political-economic model will collapse long before democratic capitalism goes down in flames.

      1. As the two key economic models are structurally intertwined at a deep level, any transformation of either will force a dramatic change on the other. The two models are connected at the hip.

        1. The society that keeps the majority of the masses distracted, relatively happy, economically viable will last. You need to please most of the people most of the time. The American Revolution could never happen today. Ideologies are just white noise, promises bandied about, almost impossible to fulfill, relativism abounds.

          Rome was ossified for 300 years before it’s demise.

  4. Regardless of how (the sum of their decisions or an unfair system) certain people ended up financially disadvantaged, we need a better safety net to ensure that all citizens have the opportunity to secure a basic level of housing, food, healthcare, and education (including technical workplace skills). If we don’t have enough private market jobs, then the government will have to develop some more worthy programs (environmental cleanup & better education?) that employ people. We can add to the 22M already employed by federal, state and local governments.
    Certain people, especially within the homeless population (600,000), have debilitating mental health issues and we need to care for those individuals and not leave them on the streets.
    Most other people (who do not have debilitating mental health issues) would probably rather live from their own efforts than from a handout (which is not great for one’s sense of self-worth). If there are some people that just want to freeload, so be it.
    Setting the level of the social safety net to provide for the basic necessities in life but not so high that the individual is still incentivized to want to improve their situation by making good decisions, delaying gratification, getting an education and working hard to improve their position seems both humane and appropriate.
    Education is the most important tool for financial independence; and should be available to all. Those who are smart and/or hard working will rise to the top and have an opportunity to be recognized and remunerated in the workforce at a higher rate. Our primary education system (K-12) is in need of an overhaul, for sure. However, if you make it to college, you probably shouldn’t spend $300,000 getting a film degree at Columbia University (reference to a recent NYT article) unless your parents are paying and you don’t need to count on much income after you graduate.

  5. The sad truth is that a not insignificant number of children come into this world with virtually no chance at being successful. Their situation and the system virtually guarantees that their road to success will be almost impossible to follow. As you mentioned people give themselves way to much credit and assume that regardless of their circumstances that they would find a way to overcome those obstacles.

  6. Thank you for this piece. I think from the comments most do not have the epiphany that is required to truly benefit from that attempt to break the myths around us. I’m not sure I do either but I have been telling people that I got lucky in my description of my financial situation. I’m not a wealthy man but compared to the people down in the creek or many people in my apartment complex I do not have any concerns. What I can see though from this is how we’ve been in cultured to believe the scaffolding that we work hard we will succeed and therefore are successes depend upon our hard work. This negates all the decisions as you pointed out that gave me the opportunity to work hard in the first place in a situation I would pay me well for hard work.

    I’m sure there’s more to the points you’re making that I’m missing, but at least I can say thank you for starting the process of recognizing why I am who I am. Ultimately that is very satisfying to me feel like I know who I am and why. Is that really though helping anyone other than me? Not sure what I can or anyone can do to help others see the point and then apply that to help other people.

    Some would say without an ability to help other people philosophy is just mental masturbation. So I think that’s the question of the day if you are starting to become enlightened by these thoughts what do you do?

  7. I know a fellow who lived in govt housing the cheapest housing in town, from about 5 yrs of age to 10 or so. His mom eventually married up, and that new household supported him properly but as a matter of principal required the exit of all children shortly after graduation. Long story short upon retirement from the military he became six figure successful, and a Tucker Carlson fan. I occasionally drive by those old buildings that sheltered him, I am proud of my friend for his success. I do not believe he gives credit toward the govt support he received. Granted i have never asked about it. He is not egotistical but he is caught up in the meritocricity myth, while social program spending grinds on him.

  8. I’m relatively successful (seven figures). In my 50s I said it was 25% luck and 75% good choices. Now (65+) I think it’s more like 75% luck, 20% good choices, and 5% not making any really bad choices. One piece of luck that’s made a huge difference is having been born in America in the exact middle of the baby boom.

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