Cheap money concentrates wealth
Instead of addressing the economic crisis of the pandemic, monetary stimulus made it worse. It has contributed to a global affordability crisis in housing, a private insolvency crisis for tens of millions of people, provided the weathiest people in society with amounts ranging from hundreds of billions to trillions to buy more property and companies, all while increasing worker layoffs.
It created the economic distortions and crisis that our countries are all living through, pouring trillions of money into driving up the price of existing assets while nothing is going into productive activities. Trillions of dollars that could have gone to modern infrastructure, new power plants, housing, research and development or building everything from chip factories to battery plants to electric vehicle factores was squandered.
What is just as frustrating is that while central bankers seem oblivious, elected governments keep getting the blame for economic disruptions caused entirely by bad monetary policy and tsunami of debt it has unleashed. This is equally true across the political spectrum: debates centre entirely on government taxing, government spending, but not on reforming the policies of central banks who, in addition to the trillions of dollars they created for quantitative easing, also helped create over USD $25-trillion in credit with nothing to show for it.
Instead of recognizing that the housing affordability crisis, our productivity crises, and our personal debt crises were caused by this mind-boggling misallocation of investment, the blame has fallen on people, especially immigrants and refugees, for the fact that people in developed countries cannot get jobs that pay enough to afford a roof over their heads. It’s blamed on immigration, or Indigenous people, or whichever usual suspect is on the list, including by respected economists, who fail to recognize that we have a money problem that needs to be solved with money.
Wealth inequality, long identified as the biggest threat to the stability of democracies, has increased since the pandemic in entirely predictable ways.
The people I work with are now mostly facing years of austerity and at least a decade or more of catching up to underfunded services, infrastructure, and social needs, stagnant pay, and over inflated prices for essentials. Young people are having their future earnings extorted for an underfunded and over-valued post-secondary education and housing prices that are kept high to insure that middle class retirements don’t need to be funded by the state.
When governments praise economic growth as the way out of this mess, it’s important to remember that the gains of that growth largely go to the same people who benefit from low interest rates, which means that the people in the higher tranches of Lamott’s tables will continue to reap the benefits. Money that can be borrowed at 3% to make a 10% profit is a tasty proposition if you can afford it. Borrow cheap money, but “growth” equities and return the money. Awesome. If you have the capital to do it. And to get a few more percentage points of profit out of your equities, lower the operational costs of the company by replacing salaries with automation, or making the whole thing “efficient.” Which means throwing thousands of people out of work. All the while you aren’t taxed in that wealth because it isn’t year realized capital gains. In fact you can now borrow even more cheap money using your equities as collateral.
When governments start making noise about taxing that wealth, you can raise a stink about how inefficient and expensive public services are and how that puts a drag on investment, even though “investment” isn’t producing tangible and material development, just more vaporous equity.
And anyway, Lamont says that’s not even the right conversation to have. Wealth inequality is enabled by darker constraints and I appreciate that he brings a bit of light to what these are. We have no governments that are willing to address this situation meaningfully. Collapse is likely the only way out.
We live in an era of austerity during which there is more “money” in the world than there has ever been.
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