Around 1936 the idea emerged of a tongue-in-cheek Chinese curse, "May you live in interesting times." While the idea may be errantly attributed to the Chinese--some anecdotal support notwithstanding--it is not errant to see both ourselves and the Chinese enmeshed in interesting times. For the better as well as for the worse.
Consider America's Ebola scare. The worst, arguably, has been the misfortune of two critical care nurses contracting the virus while treating a patient with the disease at a Dallas hospital. The "better" was the inspiring recent photo of President Obama warmly hugging the now-Ebola-free nurse, Nina Pham. With Pham obviously thrilled at her rapid recovery and empathetic presidential recognition, the photo-op calls to mind FDR's timeless words, "The only thing we have to fear is fear itself."
In the space of one interesting moment the U.S. President trumped the band of Glenn Beck & the Fearmongers, while making a case, symbolically, that the emerging best practice protocols of the National Institutes of Health, and CDC, may hold considerable promise. (Interestingly, Glenn Beck's elevation of the issue may have speeded up the new protocols, thus helping advance the public good.) If the perfectly photographed presidential hug was the brain product of Obama's new Ebola czar, Ron Klain, the spinmeister made no small contribution to image management, especially with the highly partisan midterm elections just ahead.
Is Financial Repression a Viable Value?
In the context of political campaign cacophony and stock market volatility it is easy to find interesting developments. But what could be more interesting, or perhaps disturbing, than Federal Reserve Chair Janet Yellen's recent musing at the public microphone? At least, that's the case made by Chris Martenson (Ph.D.), an economic researcher and futurist. Martenson conveys it this way: If Janet Yellen genuinely thinks it "appropriate to ask whether this [inequality] trend is compatible with values rooted in our nation's history," what causes her to support policies that enormously widen the wealth gap? Martenson contends that Yellen's advocacy of questions appears "disingenuous and disturbing" in the absence of policy moves consistent with the questions. Indeed, Martenson is not alone in raising this concern.
In short, Martenson alleges that the Fed is engaged in "financial repression" against savers. The numbers support his allegation. Evidence suggests that Fed actions have transferred at least $750 billion in purchasing power from savers to other entities, such as Wall Street traders and barons. And that's just the tip of the iceberg.
Chris Martenson observes that the national wealth transfer shows up in record Wall Street banking bonuses, rising corporate profits, record stock buybacks, and rising wealth inequality. If so, being dependent upon the Fed for fairness is "like being trapped in a dysfunctional relationship with an abusive partner"--one of Martenson's masterful metaphors. What we need, then, is either a divorce from the Federal Reserve (with clawback terms on assets), or consequential guidelines for the nation's central bank that would level the playing field for middle class and working class Americans. Meanwhile, possibly moved by a growing resistance to pluto-democracy (plutocracy behind the veil of democracy), William C. Dudley, President and Chief Executive Officer of the New York Federal Reserve, is engaged in damage control with Wall Street banks.
Speaking at a workshop on reforming culture and behavior in the financial services industry, Fed President Dudley avers that something must be done about the public's rising conviction that people on Wall Street are generally not as honest or moral as other people, and that Wall Street operates to the harm of the country. To his credit, Dudley admits that Wall Street's culture needs fixing. Nonetheless, he stops short of the type of reformation needed, choosing to ignore the wealth transfer and siphoning effects so evident in Wall Street operations.
Seeking to retain as much self-regulation as possible for Wall Street, Dudley wants big bank CEOs to focus upon several public relations problems: illegal activities, excessive risk-taking, and the dumping of government fines on shareholders in lieu of penalizing bad actors. If the Wall Street culture can improve in these three areas, Dudley seems to believe that public outcry will be muffled. With the PR problem mitigated, there will be fewer calls to break up the big firms and their concentrated power. To get there, N.Y. Fed President Dudley wants big bank CEOs to make it verboten for traders to brag about evading the law or how they made killings by taking huge risks with other people's capital. He advocates combating illegality and excessive risk taking by giving big firms the ability to claw back wealth when illegitimacy or excessive risk-taking is found. Tellingly, he is mute about striking down the legal ways that Wall Street exploits its near-monopoly of the nation's tax-sheltered retirement savings.
The New York Fed wants to fix the big bank culture without addressing Wall Street's culpability in soaring inequality. Lamentably, there is no passion in the Fed to ensure America's middle class workers garner their fair share of the wealth created by American business enterprise. What the Fed wants instead is spin control.
Is the Federal Reserve's Dual Mandate Fair?
Several important changes are desperately needed at the Fed--changes that must be demanded by a visionary political party with a platform containing program implementation measures as well as lofty values. Reformers must start with the Fed's 1977 dual mandate from the U.S. Congress. The Fed is tasked with low unemployment (now spun as a growth mandate that necessitates easy money policies) and stable prices (reconfigured as a cagey mandate for 2% CPI inflation). Concerning the second directive, if 2% inflation is stable pricing, why does the Fed's inflation target cut in half the domestic purchasing power of the U.S. dollar in less than 25 years? Surely there are other options, besides easy money for Wall Street, that would stimulate the nation's economic health--options the Fed ignores because they don't concentrate wealth in the hands of the Fed's priority clientele.
What we need now is a third requirement in the U.S. Congress's mandate to the Federal Reserve. It is this: Fed policies must work effectively to narrow the economic inequality gap whenever 5% of the population own more than 50% of the nation's stock market wealth--an undemocratic power outcome. The new mandate would be simple and effective, necessitating immediate change in central bank operations, since the top 5% currently own over 80% of the nation's stocks.
Interestingly--to call to mind the supposed curse--economic inequality in America began skyrocketing shortly after Congress's 1977 skewed mandate. The design of the mandate, influenced by Wall Street lobbyists, promised a massive wealth transfer on a stealth basis. The American middle class is only beginning to realize how much has been forfeited to the top 1% on a relative basis.
The incomes of the bottom 80% of Americans have been suppressed. A stable environment of wage suppression combined with growing business efficiency suggests little Fed- recognized CPI inflation for a long-time to come. This means that the nation's central bank will have strategic cover (under its existing mandate) to pursue wealth transfer initiatives, in spite of Janet Yellen's apparent crocodilian tears about poor Americans living in sobering conditions.
Turn the analysis around. What if Janet Yellen and Ben Bernanke are both genuinely concerned with economic inequality? Why would neither leader show appropriate moral courage by insisting that the U.S. Congress task the Federal Reserve with a third mandate requiring the central bank to implement policy that works to narrow the economic inequality gap? Surely the countless Ph.D.s at the central bank could figure out ways to make the financial system spread the wealth around naturally, if they were instructed to develop such alternatives. After all, the Federal Reserve has concocted a stream of innovations to protect Wall Street's interests!
Yellen may say it is Congress's responsibility to reverse the economic inequality trend. This is true, but only in part. While a far more competent U.S. Congress could redesign Wall Street's architecture so as to broadly spread the capital ownership of business enterprise, a central bank empowered by a mandate against wealth concentration could redirect money flows within the system. Redirected, the Federal Reserve could remove Wall Street's cheap money advantage. Investment capital could be directed to the furtherance of the sustainable public good, not wealth building for those most advantaged by the financial sector's structure.
The Fed's trickle-down mentality is evident in recent well-intended but misguided comments by Fed officials. Regional Fed chiefs, John Williams (San Francisco) and James Bullard (St. Louis), stated that the Fed could continue with quantitative easing (QE) beyond the October completion date if a deflationary forecast materializes or the stock market stumbles. Meanwhile, a long-time market observer, Howard Gold, quotes the president of a prominent advising firm as saying the Fed is "definitely in the market-manipulation business," meaning a Yellen put will follow the Bernanke put, which followed the Greenspan put. According to Thomas Kee, Jr., these backstops for Wall Street work to "induce the wealth effect and spur the economy by inflating asset prices." Meanwhile, U.S. workers forfeit over $50 billion a year in lost vacation time, largely because job insecurity and performance pressures make them fearful of taking the recovery time they've earned. What is this if not a perverse skewing of economic justice? Surely there is a better way.
Conclusion
Design changes in Ebola management protocols make it highly probable that the Ebola hazard in America will be successfully contained. In contrast, the hazard of wealth-concentration policies implemented by central banks is not under containment. This problem threatens the very fabric of democratic enterprise.
Francis Fukuyama, a world-renown Stanford University professor, is backing away from his 1992 thesis that saw democratic capitalism as the world's abiding political order. Now, Fukuyama concludes that the U.S. faces political decay and dysfunction, calling into question the security of our future. If this means "interesting times," we must learn from recent Ebola management experiences that established control protocols must be improved when challenged by untoward developments. Bearing important lessons in mind, the U.S. Congress must amend its Federal Reserve mandate so that improved central banking protocols will protect the nation from the hazard of extreme economic inequality.