‘Its the Fed stupid’ complete with a ‘Formula’, a la Piketty? Mr. Luce lives in the Financial Times bubble, in which the earthquake and devastation of the Crash of 2008 didn’t even register. His appointed task, being one of the barkers selling the ‘snake oil’ of Neo-Liberalism.
The History that Mr. Luce attempts to white wash the rise of Thatcher/Reagan and their successors New Labour and New Democrats: the harbingers of a disaster that continues in waves of political/cultural despair that produced the Populists, that is at the root of Mr. Luce’s exercise in self-serving misdirection. The reader will recall that the Randian Fundamentalist Greenspan ran the Fed, wreathed in laurel.
So Mr. Luce pointing to the Fed as the culprit is misdirection employed by the salesmen whose ‘product’ turned to shit!
(Added January 4, 2021)
Mr. Luce’s sudden concern for ‘wealth inequality’ is here linked to threat to ‘American political stability’ : more of the shadow of Piketty ?
The response to critics is the same today as it was after the 2008 crisis: that the Fed is doing whatever it takes to prevent a depression. But the risk is that each new chapter tightens a doom loop in which the US sovereign must eventually reckon with the ever-widening class of risk it is underwriting. America’s national debt is already past 100 per cent of gross domestic product for the first time since the second world war. It nearly doubled after 2008 and is rising sharply again. As Japan has shown, high indebtedness need not trigger a crisis. Its national debt is well over 200 per cent cent of GDP. But as the issuer of the world’s reserve currency, the US must guard its role carefully.
The most visible threat, however, is to US political stability. The Fed’s quantitative easing boosts wealth inequality by increasing the net worth of those who own financial assets, chiefly of stocks and bonds. The top 10 per cent of Americans own 84 per cent of the country’s shares. The top 1 per cent own about half. The bottom half of Americans — the ones who have chiefly been on the frontline during the pandemic — say they own almost no stocks at all.
The final two paragraphs, completed, by his numerical rhetoric of a ‘Formula’, that equals ‘Populism‘, is representative of a particular kind of maladroit reductivism. Yet within his essay, it reads as a kind of desperation to demonstrate his expertise. It is comic, at best!
Here are the potential seeds of America’s next populist crisis. The Fed is pledging to do what it takes, while America’s elected officials seem unlikely to agree on fiscal policy. The right emphasis, as Mr Powell keeps reminding Congress, would be the other way round. Monetary policy is a blunt tool. Spending by contrast can be targeted at those who need it and help lift America’s growth potential.
Alas, the chances are that the Fed will remain “the only game in town”. This would be both a missed opportunity and pose a severe danger. The opportunity is for the US government to borrow long term funds at near zero rates and invest it in productive capacity. The danger of not doing that can be expressed in a simple equation: QE — F = P. Quantitative easing minus fiscal action equals populism.