The Economist - USA (2021-07-10)

70 Finance&economics TheEconomistJuly10th 2021

Stabilité,libéralité,égalité

T

heglobalfinancialcrisisof2007­09wassociallydivisiveas

wellaseconomicallydestructive.Itinspireda resentfulback­

lash,exemplifiedbyAmerica’sTeaParty.Thatcrisisatleasthad

thetacttospreadfinancialpainacrosstherichaswellasthepoor,

however.Theshareofglobalwealthheldbythetop“onepercent”

actuallyfellin2008.Thepandemichasbeendifferent.Amidall

themiseryandmortality,thenumberofmillionairesroselastyear

by5.2mtoover56m,accordingtotheGlobalWealthReportpub­

lishedbyCreditSuisse,a bank.Theonepercentincreasedtheir

shareofwealthto45%,a percentagepointhigherthanin2019.

Thewealthylargelyhavecentralbankstothankfortheirgood

fortunelastyear.Byslashinginterestratesandamassingassets,

centralbankshelpedthepriceofshares,propertyandbondsre­

bound.Theireconomic­rescueeffortwas,inmanyways,atri­

umph.Yetcentralbanksarenotentirelyateasewiththerolethey

haveplayedincomfortingthecomfortable.InOctoberMaryDaly

oftheFederalReserveBankofSanFranciscocontrastedAmerica’s

fullfinancialreboundwithitsincompleteeconomicrecovery.“It

seemsunfair,”sheacknowledged.“AnotherexampleofWallStreet

winningandMainStreetlosing.”Herspeechfitsa trend;central

bankersarementioninginequalitymoreoften(seechart).Thelat­

estannualeconomicreportbytheBankforInternationalSettle­

ments(bis),thecentralbanks’bank,devotesa wholechapterto

thedistributionaleffectsofmonetarypolicy.

Inthepastcentralbankswouldarguethatinequalitywaspri­

marilytheresultofstructuralforces(automation,say,orglobal­

isation)thatliebeyondtheirmandateortheirpower.Theyhave

onlyonepolicyinstrument,theywouldpointout.Theycannotset

differentbenchmarkinterestratesforrichandforpoor.Andtheir

workhorseeconomicmodelsoftenfeatureda single“representa­

tive”householdthatwasmeanttostandinforeveryone.A model

willstruggletoassessa policy’simpactonthedistributionofin­

comeif thereis,ineffect,onlyonehouseholdtodistributeto.

Inkeepingwiththistradition,thebiswarnsitsmembersnotto

overreach.Centralbanksbestservethecauseofcombatingin­

equalitybystickingtotheirtraditionalgoalsofcurbinginflation,

downturnsandfinancialexcess.Tackingoninequalityasanother

objectivecouldcompromisetheachievementoftheseaims.Mon­

etarypolicywillfindit hardertofightcyclicalforcesif it istoobu­

syflailingagainststructuralforcessuchastechnologyandtrade.

Moreover,theage­oldfightagainstinflation,recessionand

speculationisnotnecessarilyinegalitarian.Highinflationisof­

tena regressivetax,harmingthosewhorelyoncashthemost.“[I

have]seenfirst­handthehavocthathighinflationcanwreakon

thepoorersegmentsofsocietywhenI grewupinArgentina,”said

ClaudioBorioofthebisina recentspeech.Fightingdownturnsis

alsoanegalitarianendeavour.Recessionsworseninequalityand

inequality worsens recessions, in a cycle of “perverse amp­

lification”,asMrBorioputsit.Deeplydividedsocietiessufferlarg­

erdropsinoutputinbadtimesandrespondmoreslowlytomone­

taryeasing.Theeffectofpolicyontheeconomyisimpairedpartly

becausetheverypoorcannotaccesscredit,andthereforecannot

borrow(andspend)morewheninterestratesarecut.Meanwhile,

theveryrichdonotspendmuchmoreeither,eventhoughlooser

policypushesupthepricesoftheirassets.

Thereis,then,noneedtogivecentralbanksa new,moreegali­

tariansetofgoals.Butthatleavesopenthequestionofhowcentral

banksshouldmeetthosegoals.Someapproachesandtoolsmay

bebetterforsocialcohesionthanothers.Andcentralbanksmight

reasonablyfavourthosethat,allelseequal,servetheirmandate

moreequitablythanothers.

TheFed,forexample,lastyearadopteda lesstrigger­happyin­

terpretationofitsinflationtarget.Aside­effectofthisapproach

shouldbelowerincomeinequality.It willallowtheFedtofindout

whetherpeopleontheeconomicsidelinescanbecomeemploy­

ableifhiringremainsstrongenoughforlongenough.Toguide

theirthinking,centralbanksareturningtoeconomicmodelsthat

include“heterogeneous”households,a stepbeyondthe“repre­

sentative­agent New Keynesian” model (otherwise known as

rank). Theyalsonowhavea bewilderingvarietyoftoolstochoose

from.Somebuyequities,whicharelargelyheldbytherich.Others

providecheapfundingtobanksthatlendtosmallfirms.(TheBank

ofJapandoesboth.)Eachtoolwillmakea differentcontribution

bothtothelevelofspendingandthedistributionofincome.

A toolofthemany

Yettherearelimitstowhatmonetarypolicyalonecanachieve.

Evena centralbankthatstickstoitscustomaryrole,thebisnotes,

mayfaceawkwardtrade­offs,pittingincomeinequalityagainst

wealthinequalityandinequalitynowversusinequalitylater.Bold

monetaryeasingmayleadtoa moreuniformdistributionofin­

comebypreservingjobs.Butitwillboostthepriceofassets,in­

creasingwealthinequality,atleastintheshortrun.Inaddition,

theseexpansivemonetarypoliciescan,thebisargues,contribute

tofinancialexcessesthatcouldgoontoresultina deeper,more

protractedrecessioninthefuture.Andthatwouldultimatelybe

badevenforincomeequality.

Thebis’s answeristobringa widerrangeofpoliciestobear,in­

cludingbetterfinancialregulationtocurbspeculativeexcesses

andmoreresponsivefiscalpolicy,wherepublicfinancespermit.

Byspendingmore,governmentsallowcentralbankstobuyless.

BenBernanke,a formerFedchairmuchmalignedbypopulistcrit­

ics,putit thisway:“Iffiscalpolicymakerstookmoreoftherespon­

sibilityforpromotingeconomicrecoveryandjobcreation,mon­

etarypolicycouldbelessaggressive.”

Ifcentralbankshaveworsenedinequalityintheireffortsto

rescuetheeconomyitispartlybecausetheyhaveborneanun­

equalshareofthejob.Withmorehelpfromfiscalpolicy,central

bankswillfindit easiertotakeawaythepunchbowlbeforethetea

partygetsgoing.n

Free exchange

Thepandemichaswidenedthewealthgap.Shouldcentralbanksbeblamed?

Getting even

Speeches made by central bankers that mention inequality*, % of total

Source:BankforInternationalSettlements

*SelectedspeechesmadeinEnglishthatmention“inequality ”and

“distributionalconsequences/impactofmonetarypolicy ”

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2021

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Emerging economies

Advanced economies