Mainstream Econ Twitter is having a field day pointing out how silly progressives are to call the Fed’s recent injection of $1.5 trillion a ‘hand-out’ to the financial markets.
‘Lolz,’ they say, ‘It’s a loan, not a hand-out!’
Here’s why they’re wrong & we’re right. 1/20
‘Lolz,’ they say, ‘It’s a loan, not a hand-out!’
Here’s why they’re wrong & we’re right. 1/20
First, let’s start with the basics.
Within capitalism, there are three basic economic tools:
• Fiscal Policy (gov spending/taxes)
• Monetary Policy (increase/decrease money supply, interest rates)
• Statutory Policy (min wage laws etc.) 2/20
Within capitalism, there are three basic economic tools:
• Fiscal Policy (gov spending/taxes)
• Monetary Policy (increase/decrease money supply, interest rates)
• Statutory Policy (min wage laws etc.) 2/20
These 3 sets of tools can be used to curb some of the worst tendencies of capitalism. For example, they can be used to bring an economy out of recession/depression, attain full employment, address inflation, etc. 3/20
However, the specifics of HOW these 3 tools are used can make a world of difference!
They can be used in such a way that they can increase economic injustice.
OR they can be used in such a way that decreases economic injustice. 4/20
They can be used in such a way that they can increase economic injustice.
OR they can be used in such a way that decreases economic injustice. 4/20
They can be used to improve the lives of the vast majority, or they can further consolidate wealth & inequality.
They can uplift the economy from the bottom-up, or further exasperate the wealth gap between the 1% & the rest of us. 5/20
They can uplift the economy from the bottom-up, or further exasperate the wealth gap between the 1% & the rest of us. 5/20
For those of us working for a more fair, equitable & democratic economy, the effects of these 3 tools on the REAL economy is what matters.
Are policies moving us closer to the values we hold dear or moving us further away? That’s what matters: 6/20
Are policies moving us closer to the values we hold dear or moving us further away? That’s what matters: 6/20
I have threads where I explain why capitalism is inherently inequitable, undemocratic, alienating, environmentally destructive & all-around a horrible economic system. It should be replaced.
But until then, these sets of tools are all we have to mitigate its worst effects. 7/20
But until then, these sets of tools are all we have to mitigate its worst effects. 7/20
So, with this framework in mind, here’s what’s happening.
In January, before coronavirus was a concern, the Fed started expansionary monetary policies (recall Monetary Policies are one of the 3 types of tools related to increasing or decreasing the money supply). 8/20
In January, before coronavirus was a concern, the Fed started expansionary monetary policies (recall Monetary Policies are one of the 3 types of tools related to increasing or decreasing the money supply). 8/20
The Fed has different tools to expand/increase or contract/decrease the money supply. One of which is what they are currently utilizing: providing liquidity through practically zero-percent loans.
Since January, the Fed has injected a total of about $5 trillion this way 9/20
Since January, the Fed has injected a total of about $5 trillion this way 9/20
If we were under a depression/recession with high unemployment, etc, the rationale for expansionary monetary policies is that it would lower int rates & drive up agg demand by increasing investments.
Under certain circumstances, it may help bring an economy from the brink. 10/20
Under certain circumstances, it may help bring an economy from the brink. 10/20
But the Fed showed their hand & gave away their true intentions when they started these expansionary policies at a time when stock buybacks were at a record high, ‘real economy’ investment was at a low & unemployment was also low. 11/20
As explained at the time, those measures did NOTHING for the vast majority of people & only served to prop up the markets.
In fact, the only REAL economy effect was likely NEGATIVE for most people, explained here: 12/20
In fact, the only REAL economy effect was likely NEGATIVE for most people, explained here: 12/20
Before the panic, stock buybacks were at record highs & real economy investments were very low. Expansionary monetary policy did little for the real economy.
After the panic? Check out Rule #3 below: 13/20
After the panic? Check out Rule #3 below: 13/20
As pointed out by @drjackrasmus the current economic panic is resulting in liquidity preference, & injecting money will mostly result in money hoarding rather than investing or spending.
It will do next to nothing for the real economy. 14/20
It will do next to nothing for the real economy. 14/20
So, yes, propping up the financial markets using monetary policy, just for the sake of propping them up, with little to no REAL economy effect IS a handout.
It’s a handout that vastly benefits the 1% at the expense of the rest of us. Explained here: 15/20
It’s a handout that vastly benefits the 1% at the expense of the rest of us. Explained here: 15/20
People are struggling. 40% of the population are just one paycheck or medical emergency away from financial ruin. Social safety nets have been torn to shreds. Millions lack basic healthcare. Millions are either homeless or food insecure. 16/20
In a time like this, when so many are hurting for just basic needs, mainstream economists on Twitter are coming out of the woodwork to point out (wrongly, no less) that the Wall Street handout is not really a handout. It’s fucking disgusting! 17/20
People’s intuition & actual lived experiences of hardship are correct. The government & Fed step in quickly & decisively every damn time to bail out the 1%.
But with when it comes to basic needs of everyone else, like M4A, who steps in for the most vulnerable? 18/20
But with when it comes to basic needs of everyone else, like M4A, who steps in for the most vulnerable? 18/20
The Fed’s response will do next to nothing for the REAL economy. Instead, we need increased social safety nets. We need to catch up with other countries with 21 days paid sick leave. We desperately need to increase minimum wage to 1968 comparable wages: at least $24/h. 19/20
The time for quick & decisive action that actually benefits the 99% is now! No more handouts for the 1%!!!
Here are 5 tangible policies to start now: 20/20
Here are 5 tangible policies to start now: 20/20
I've address questions & comments in an updated thread here:
