Minneapolis Fed President Neel Kashkari says the Fed Can Fight Inequality. Then in a move guaranteed to fail, Kashkari Hires an Obama Economic Advisior as His Guide.
Neel Kashkari, the outspoken dove at the Minneapolis Fed, says monetary policy can play the kind of redistributing role once thought to be the preserve of elected officials.
When Kashkari, a year into his job, launched an in-house effort in 2017 to examine widening disparities in the economy, he was expecting to generate research that might inform lawmakers’ decisions, rather than the Fed’s.
“We had historically said: distributional outcomes, monetary policy has no role to play,” he said in an October interview. “That was kind of the standard view at the Fed, and I came in assuming that. I now think that’s wrong.”
Kashkari’s project has taken an unexpected turn over the last two years, morphing into something more ambitious. It has the potential to transform an intensely political debate about inequality into a scientific endeavor that the Fed’s 21st-century technocrats could take up.
This year, he finally found someone to lead it: Abigail Wozniak, a Notre Dame economics professor, became the first head of the Minneapolis Fed’s Opportunity and Inclusive Growth Institute. Wozniak was a member of President Barack Obama’s Council of Economic Advisers.
One of its priorities has been to build a network of experts on income and wealth distribution, the same way the Fed brings in specialists in financial markets or growth.
Fed a Key Driver of Income Inequality
Kashkari is correct in a perverse sort of way given that Fed is a key driver of income inequality:
- By bailing out banks and financial institutions when they get in trouble
- By keeping interest rates too low too long
- By promoting economic bubbles
- By promoting inflation
So yes, the Fed could help if it simply stopped doing those things. It would be better still if there was no Fed at all, so the main thing the Fed could do would be to promote a sound currency then disband itself.
There is No Economic Benefit to Inflation
The BIS did a historical study and found routine deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.
It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Challenge to Keynesians
And my Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.
There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.
Irony Abounds
Kashkari came to the right conclusion but instead of disbanding the Fed or changing any of the above four points, he hires and Obama economic clown as his guide.
Note that Kashkari is the biggest dove on the Fed. He would vote for 2, 3, and 4 at every chance.
Yet, inflation benefits those with first access to money (banks, wealthy, asset holders, and corrupt politicians). The poor only participate in bubbles after there is nothing left to gain.
Curiously, my answer is the same as Kashkari’s. Yes, the Fed can help. And the first thing Kashkari could do to help is simple enough, resign.
Addendum
A reader criticized the title “income inequality”. He thought distorted the picture.
He is correct but in the opposite sense as he intended. Wealth inequality (via asset bubbles) is imore of the issue.
I change the title to “wealth inequality”. The title of the linked-to article simply says “inequality”. It’s both income and wealth actually.
Income inequality is via stock options and pay bonuses for blowing bubbles. Wealth comes from cashing out stock options and holding assets accumulated during bubble phases.
Mike “Mish” Shedlock
Saw this story at
Interesting graphic, and interesting implications. One of the things that strikes me is this concept that one can live at some sort of “comfortable” level via work given the wage levels described, but which assumes that life will placidly swan along with steady income and outgo at that comfortable level. It does not allow for the unforseen, a car accident, of which there are close to 6 million per year and a couple million of those cause serious and very expensive damage, or a house fire, 354,400 per year, or major illness, many millions per year, which can and does completely destroy the security assumed in the article. Ask me, the house I lived in in 2001 burned down leaving me with nothing, literally naked in the snow and Mid Hudson insurance denied any claim as I was only by their definition a “guest” in the house and the owner died in the fire. Prior to that I worked in New York City till the 11th of September 2001. And, in 2013 my car was hit by a careless driver in a rear end collision that my insurance company did everything they could do for years to not pay the damages, thank you State Farm. Or, the time Chase used a banking error that a third party made to steal my pay and my house and they got away with it. That time it was AllState which sent a premium payment through twice and overdrafted my account without me knowing about it because my bank WaMu was closed for more than a week for the shotgun marriage with Chase who held my mortgage.
So I look at the chart this article shows and contemplate how wonderful it would be if only all you have to worry about is having to work 80 hours per weel or as in the case of HI 91 hours per week to be comfortable. But, I have been comfortable several times in my life only to have that end overnight in circumstances utterly beyond my control and then you get to enjoy the stigma of poverty and abuse of homelessness. Been there, trust me it can happen to you too.
Mish, there’s so much confusion and bs around the causes and fixes for economic inequality. first, there will always be some. however its generally better when its less rather than more. second, there are capitalist economies where its less i would think. ray dalio is out there bitching about the eventual societal armageddon we will get from inequality but proposes no solutions in his interviews.
it seems to me that owners of capital and their managerial staff has taken more of the spoils here than ever before. so the providers of labor have smaller share of gross revenue as compensation ratios are at the low end of a 40 year range. i saw some big hedgie speak at a fireside chat that corp profits are 12-13% of revenue today vs 6% for most of post ww2. he thinks we need to reign in corp profit margins. says we have 6mm employees of publicly traded cos living below poverty level. i remember post recession walmart employees were largest single group of food stamp recipients. here we taxpayers subsidize walmart workers so they can buy billions of dollars of shares.?
in addition to smaller pie for all workers vs cash flows for shareholders. it appears that managements have taken much larger slices of the pie vs average worker bees. thats from the 30x’s salary difference 40 years ago to the 300x’s difference today.
there has been a war between owners of capital and providers of labor and the worker bees have been slaughtered on a relative basis, creating massive fortunes for owners of capital and their managements. this war on the wealthy concept is total bs.
i am noodling some ideas re fixes.
first, the average worker doesnt really want the feds taking wealth from bezos or dimon. what they want is really bigger paychecks in the form of 500 basis points of gdp in the form of compensation or $1 trillion annually. they want raise as amazon or jpmorgan employees. with limits to exec comp at some ratio thats fairer than 500x’s. how we get there i dont know, but most other countries have much higher comp ratios and lower profits and they survive. japan and germany are 2. maybe we tax super high comp or corp buybacks at high rates to disincent.
secondly we need to get out of the debt morass w a global coordinated debt jubilee. we do this for all economies where the central banks fund government debt repurcahses at/above par in tranches as shares of gdp. so all nations participate. naturally we use this free lunch to fix structural problems. here they would be so called entitlements. we could index SS and medicare to life expectancy. go after stupid health care expenses etc. that would be the price for wiping out $20 trillion of US govt debt. then interest rates would be free to float again too.
we have lots of problems here. we need to think differently about these issues and even benchmark other nations that have better process and results than we have here. from defining how much taxes we want to pay as a share of economy and then how best to spend that money for most benefits.
If Social Security was invested like the “wealthy” invest, we would not be talking about wealth inequality; and if direct taxation was eliminated (or at least reduced instead of always increasing), we would not be talking about income inequality.
Instead, the delusional establishment keeps everyone in the dark by pointing the finger at everyone but themselves, by blaming the Fed or selling the notion that the most wasteful/neglectful/corrupt entity (GOVT) needs to confiscate more money from the pockets of Americans.
Mish, the headline still is broken: “can the can” should be “Can the”
So counterfeiting does benefit selectively?
Who would have imagined?
“Neel Kashkari, the outspoken dove at the Minneapolis Fed, says monetary policy can play the kind of redistributing role once thought to be the preserve of elected officials.”
Isn’t the FED already redistributing to the wealthy? After all, CEO’s are borrowing lots of money to buy back stock after getting the board to lavish stock options on them, so they can pocket the money.
The Fed already helped “fix” asset prices (and wealth), only a fool would want them to keep “helping”.
Kashkari is just a run of the mill bureaucrat looking out for himself, and screw everyone else.
Mish meanwhile continues to allow extreme left professional commenters to post, while banning conservatives. Maybe he should move to Berkley instead of Utah!!!
Sure, the Fed COULD fight inequality by normalizing rates and letting TBTF banks fail, but we all know they’re never going to do that. Instead, the Fed will continue to widen inequality whenever possible.
On a side note, Kashkari went to an elite private high school 15 minutes from where I grew up. I went to private school too but his was WAY more expensive, about $15K/year back in the early ’90s. He then went into the Ivies, of course. Neel wouldn’t know an average person if he tripped over one and it’s a safe assumption he cares little about the regular Americans. His bellyaching about inequality is optics, nothing more.
Let’s be glad he does not see us because if he did he would hold us in the same esteem as he does an average tapeworm. Parasites to be gotten rid of. By the way I had a billionaire Ex (now deceased) that was like that, but it was the 80’s (pre billion mark) and tuition at Bellerman was even higher than what you quote, and now closer to 25k per year per kid. Times 4 kids. Living like that was a real eye opener.
One way not to solve a problem is by getting the government involved in trying to find a solution.
Or better stated, if you base your power on helping the poor, you will lose that power when they move up in income level. Hence, it isn’t in their self-interest to actually help the poor.
The sentiment is valid, but of course not practical. There are a third of a billion people in the US today. Laissez-faire economics is partly to blame for where we are now. Except the interference we have experienced over the past 100 years has all been in favor of the wealthy, the few scraps of social safety net we have now were only enacted on a shoestring (compared with the assets of our owners) in order to socialize the cost of maintaining a labor pool for the rich to rape at will. Had we not enacted social security and SNAP and a very low level of healthcare benefits or other social programs the rich would have had to pay for that or they would not have a labor force at all. So, the safety nets the far right whine about were actually relieving the hyper rich of the obligation to maintain their own labor, just ask the Walton family.
Now, in the post industrial financialized western society that labor force is no longer required as it can be rented from Mexico, China, Vietnam, or other nations for far less and without a care about the environment or other mandatory negative externalities.
That is why there is a massive and pervasive media campaign to blame poverty on the poor. In fact the very super wealthy even have their own political party dedicated to maintaining their wealth while the poor have the democrats to try to find them a few crumbs that fall off the tables of the sybaritic playboys.
If the homeless had loaded up on assets as Yellen had advised when she was about to embark on her low interest rate crusade, they’d have higher quality tents.
I gave a homeless man a small box of nickles and dimes (I do not deal with coin change anymore, coins are no longer worth the hassle) and he and his little dog were so grateful, he said he was leaving to buy some fuel, a small can of fuel for his alcohol burning stove, or sterno or some such. He was at the driveway to a strip mall in a relatively better off neighborhood near my house, it was just a few coins to me, practically worthless, sitting in a tin box for months, but it was the gift, the care behind that minor generosity that astonished me, it made his week. So, if he spent it on a can of beer so what? What if he spent it on a can of sterno to heat some cheap can of food or to keep his dog alive? We are at that point in America, every freaking street corner in this city has multiple beggars, the freeway ramps, the driveways, the intersections, and yes some are scammy addicted hobos that you might deride for being “lazy,” but no matter how lazy you think they are they are still working harder for their income than nearly all of our 1% do. Because those parasites do no work at all for their money, they inherited the assets that the fed and government just keep on gifting, all they have to do to see a box of money come their way is open their online portfolios.
And this is why America will not survive, because people insist that people are worth their account balances. I would add that a nation that relegates people to starvation amid wealth does not deserve to survive.
Perhaps 2 currencies?
One that can only be earned by actual productive work, and cannot be devalued.
And one that floats for the ‘investors’ to play their games with.
We already have this
Real gold and silver, in YOUR hands…
safest PENsion long term…
Ask any from Argentina..Venuzuela,Zimbawe….ect….
Gold and silver are not money, they are an asset that cannot act as money. And even if they could Gresham’s law would not be repealed, you would still have an even more concentrated wealth inequality with bad money nearly instantly driving out good. If you think that PM’s will ever be able to play the part of a medium of exchange then you just are not grasping the scope or urgency of the problem, those that are well off because they hoarded wealth in the form of gold and silver are going to be the first to have gangs of starving masses at their doors holding pitchforks and torches. Hoarding PM’s is what economists call a misallocation of capital, you think your “investment” is rising when you check the price of gold, but I assure you it is not rising as fast as other “assets,” nor the debt that supports those asset prices. And it seems to me that you delude yourself because you have not noticed that the prices of PM’s are always denominated in dollars.
Gold will be confiscated again when the collapse comes and you say you will resist that violently? Then you will just be a very rich corpse. Or you will have years in some gulag to reflect on your priorities. You can yell and scream all you like at me and by all means shoot the messenger because you don’t like what he says, but these are facts you can’t avoid by denial. The prepper community is insane if they think that they alone are going to survive in relative security while 98.7% of the population just dies. That is not how it is going to go down.
Addendum
A reader criticized the title “income inequality”. He thought distorted the picture.
He is correct but in the opposite sense as he intended. Wealth inequality (via asset bubbles) is imore of the issue.
I change the title to “wealth inequality”. The quoted article title simply says “inequality”. It’s both income and wealth actually.
Income inequality is via stock options and pay bonuses for blowing bubbles. Wealth comes from cashing out stock options and holding assets accumulated during bubble phases.
actually the headline would make more sense as wealth rather than income and the answer even more emphatically as I commented
By the way, disbanding the Fed would only make income inequality worse not better. We had economic panics before the Fed and depressions without a central bank. No one can show that any system is better or worse than another. Human behavior is what drives systems. Human behavior doesn’t change irrespective of what the money system is.
How about if we look at personal debt over time and ask if we are better off now compared to 120 years ago.
“Unless you have a system that trains and employs the underemployed and unemployed…”
Who is “you”? Certainly not an unaccountable bureaucracy that gets paid regardless of performance. Markets can sort themselves out. The government’s only roll should be to ensure a level playing field.
That is an ideal world that has never existed. Governments are part of free markets always to some degree.
The FED can remain the lender of last resort, and an “adviser” on interest rates. I wouldn’t read too much into the epoch before the FED; the population was young, and industrious, the possibilities seemed limitless. Much like West-developed China today. Today, the FED is the creator of paper wealth for the asset holders.
Scaling back government reach to pre-Fed levels and muzzling the Fed will go a long way to helping our country act “young and industrious”.
Too late to turn this ship around. Today, I had a reminder how deep this lib**** disease has gone. The demographic that should have been eliminated by competition in a bygone era, occupies top positions.
It cant happen in a globalized workforce economy. The pre central bank world is an alternate universe compared to the one we live in now.
Unless you have a system that trains and employs the underemployed and unemployed, there will be income inequality. I’m not surprised the Fed would get into non-monetary policy. At some point everyone has to acknowledge the elephant in the room. The Fed is part of government and not the independent institution it claims to be and the banking system is effectively federalized.
Can the Fed fight income income equality? Of course it can: Use it’s overnight repo program to suppress credit card debt of the low income to 0%, and give them unlimited amounts to expand it.
Like they’re doing the the rich.
We’ll call it The People’s Fed.
Wasn’t this guy plucked from obscurity to head the TARP, and then promoted to the FED? Probably senses the wind in the presidential candidates’ campaigns. In case he places his bets right, he will be in the running for the top job, if not he looses nothing.
I know Neel… this is a shocking change of direction.
Inequality?
Kashkari was Hank Paulson’s point man on TARP.
If he has a purpose, it is … To Serve Man.
“Reducing Income Inequality” has never been anything more than Newspeak for robbing the middle and upper middle classes of resources they could ostensibly use to threaten the idle leeching classes The Fed was created to serve.
Hence reducing the risk of a meaningful slave revolt, and making the plantation more peaceful for the Fed appointed Massas again. By enuring all the serfs are once again indigent enough, to be grateful for the breadcrumbs they are thrown in exchange for living their life pliantly bent over in deference to their benevolent rulers.
Crazy eyes on that guy.
Crazy facade with nothing behind it…
“Neel Kashkari, the outspoken dove at the Minneapolis Fed, says monetary policy can play the kind of redistributing role once thought to be the preserve of elected officials.”
…
No.
Federal Reserve purpose regarding monetary policy as stated in Federal Reserve Act:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
ANYTHING else is mission creep unless given mandate by Congress.
….and even that “mission” in nothing but pure and abject idiocy, regardless of Congress.
Arsonists expected to put out fires.
Roosevelt tabbed Joe Kennedy to head up SEC.
In sort of a ‘it takes a crook to catch a crook’ way.
YEAH SURE ! Let s confiscate Gates’ Warren’s, Bezos ‘ and other destiny defined lucky bastards’ trillions …..but even that would only be a drop in the 600 trillion social ocean, so take my miserable ‘fortune’ too, bail out my fckn bank(s) with a bail in, that will do the job within the context of a utterly insane, central banksters created, cheap debt driven financial system at the end of its fckn wits !