NIRP and Other Economic Policy Kabuki
Recent stories in the financial press about the possibility that the Fed might follow the lead of central banks in Japan and the EU by adopting a negative interest rate policy (NIRP) remind us of how short-sighted and self-destructive the members of the Federal Reserve and their fellow Masters of the Universe (MoU) can be.
Their first resort is always to monetary policy. NIRP is a great example of just how far central banks are willing to go to avoid fiscal policy as a tool to fight deflation and stimulate demand. It is the ultimate form of the proverbial (interest rate policy) hammer that drives all nails. The idea that the Fed would rather impose a penalty on savers - oh, and move to a "cashless society" so there's no safe haven - rather than take direct aim at weak demand reflects their cowardice and bankrupt values.
When monetary policy falls short, their second resort is to supply-side stimulus, i.e., Qualitative Easing (QE). Central banks like the Fed give money to commercial and investment banks (as if there's a difference these days), which then invest it in securities, because low interest rates make loaning money relatively unattractive. QE programs may goose financial markets, but they do almost nothing to create jobs or increase economic growth outside the financial sector.
When both monetary policy and QE programs fail to stimulate economic growth (and fail they have), what's left is stimulating the demand side of our economy. But that's where the "moral hazard" firewall prevents us from taking the one obvious path to economic recovery. Why? Because fiscal stimulus is like "dumping money from helicopters", don't you know. After all, how can we teach our children the value hard work if we just "give" them money?
Of course, fiscal stimulus is not at all about giving money away. It's about investing in programs that create jobs, which puts money in the pockets of workers, who then spend the money, which creates more jobs, increases tax revenues, and stimulates growth in upstream businesses. And when programs are aimed at infrastructure improvements, like fixing roads and bridges or renovating schools, we gain even more from such investments.
Most arguments against demand-side stimulus, including "moral hazard", "helicopter money" and "deficit-busting" / "how can we ever pay for that" lines are intentional horsesh*t diversions. When done right, these programs pay for themselves. We even have proof of that, in the form of New Deal-era programs, some of which we still benefit from.
We need to call out the political agendas, calculus, and cowardice that stand in the way of enacting economic policies and programs that benefit *every* American - including the already wealthy. Tinkering at the edges may sound good to Americans who have been beaten down so long that they can no longer imagine better. But for those of us who can, we need to seize this rare opportunity for change, from a candidate who has the courage to speak the truth and is not beholden to the Masters of the Universe.
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