Mucking Around With Rich People’s Money

New Monetarism argues the correct policy to stimulate recovery and bring the economy back to its pre-recession growth level is for the Fed to promise inflation down the road in order to boost economic action and investment now. They argue that we need to increase nominal GDP in order to get there.

The Fed has been sort-of doing that (to a very much lesser degree) through quantitative easing.

But banks and corporations are awash in cash. They don’t need more money hanging out there. The money is just sitting because there is no reason to invest now, or to invest much tomorrow, either. This is partly because they don’t fear inflation, or at least don’t believe inflation is going to turn their cash into useless pieces of paper.

But at the same time, prices aren’t dropping. They’re largely stable. That means demand for goods aren’t necessarily going down but they’re not going up that much, either. Producers are producing just enough to meet demand.

So why would companies want to invest now, or even tomorrow? What action could the Fed take that would lead them to think future inflation will actually hurt them?

It won’t happen. And that’s why the Fed can print as much money as it wants to and it won’t do jack shit; it’ll just sit in the banks and in corporate coffers like it has been for the past several years.

A friend argued yesterday against fighting different business strategies in response to complaints about Walmart’s strategy to push down prices and wages (and not just internally as a consequence of pushing down vendor prices) because companies should be allowed to try different business strategies.

I don’t disagree with that but for someone who is a New Monetarist, I have to ask:

Under what mechanism will the money banks and corporations are holding will we see the money actually become liquid?

It has to move from banks to businesses and corporations and then into the hands of their employees to buy products and pay for services so that money can be liquid again, does it not?

That is unless we are going to simply keep that money going back and forth between banks playing on Wall Street and never see that money go elsewhere.

What we need aren’t simply more jobs, but better paying jobs. The middle-class is disappearing because middle-class jobs are disappearing – that is, jobs that pay middle-class salaries and wages are disappearing.

“At one end are so-called abstract tasks that require problem-solving, intuition, persuasion and creativity. These tasks are characteristic of professional, managerial, technical and creative occupations, like law, medicine, science, engineering, advertising and design. People in these jobs typically have high levels of education and analytical capability, and they benefit from computers that facilitate the transmission, organization and processing of information.

On the other end are so-called manual tasks, which require situational adaptability, visual and language recognition, and in-person interaction. Preparing a meal, driving a truck through city traffic or cleaning a hotel room present mind-bogglingly complex challenges for computers. But they are straightforward for humans, requiring primarily innate abilities like dexterity, sightedness and language recognition, as well as modest training. These workers can’t be replaced by robots, but their skills are not scarce, so they usually make low wages.” – David Autor and David Dorn, “How Technology Wrecks the Middle Class (”

In other words, we need the masses who will be doing those low-skilled, non-scarce jobs to be paid more than they are now. We need higher wages, not Walmart’s downward wage pushing business strategy.

Being married to an economic ideology that values experimentation above real-world results for the sake of scholastic experimentation is a blindness that needs to be cured.

That said, saying that we need higher wages doesn’t mean we will get them. One of the most assured ways to increase wages is to demand them through unions. Union power, however, has been crippled through regulation and the slowdown of job growth. You can’t have much union power behind you if your employer has an army of unemployed workers willing to take the protesters’ place so they have a meal on their table (if they own one).

But unions would have a lot more power if people understood that we do need higher wages and we need to support this method of putting upward pressure on wages. Corporations that have been sitting on money need to start spreading that wealth.

If not, then the government needs to force it, even if in a roundabout way.

“If you’re already 35 or 25 or even 15 or 5 then a lot of these smart ideas about universal preschool and school reform and wraparound social services are coming too late for you. But you still deserve to have as good a life as possible, just like people suffering from serious genetic maladies or who’ve been badly injured in car accidents or whatever. “Well you had the opportunity to wear a seatbelt” isn’t much of an answer. People can’t work hard and get ahead on fair terms without lots of government support, and plenty of people who do work hard won’t get ahead anyway for one reason or another and they need government support too.” – Matt Yglesias, “We Need Government Handouts, Not Equality of Opportunity (”

What we need is fiscal stimulus, not simply a promise of future inflation no on on this planet (outside of the lunatic fringe on the political right) will ever fall for. If we want real inflationary pressure, we need to produce it by putting money into the hands of the people, either through increasing wages one way or another or by increasing cash income by taking it from the people who burn it for a living and handing it into the people who want to use it for something. You can’t force a liquid to move and mix without some outside force mucking with it.


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