Finally, the Fed and bank regulators must reckon quickly with the new, digital forms into which money is quickly being transformed. Financial policy builds the engine of economic inequality, but money is its fuel. If it joins financial policy in revving up the most powerful – i.e., the wealthiest – parts of the engine by flooding them with gas, the US financial system will quickly become still more inequitable and thus even less stable. We will see in Chapter 9 how a new central-bank digital currency that harnesses the fuel in a newly designed equality engine would set us quickly on a more level, tranquil road.
We will also see in Chapter 10 how to ensure that new rules or institutions aimed at equality actually do what they're told. Purpose and profit do not rest easily within private-sector financial companies. So it's also time for the federal government to step in with targeted financial products and newly designed financial institutions. There must also be tough rules to ensure that those given lucrative benefits to serve the less well-off do not repeat past instances in which financial companies hid behind do-good charters and did all too well only for themselves. Classic cases in point are the $5.5 trillion US government–sponsored enterprises Fannie Mae and Freddie Mac. In the lead-up to 2008, they invested millions in advertisements echoed by nonstop lobbying touting the “American dream of homeownership” and how they made it real. In 2008, both of these companies' failures initially cost taxpayers $187.5 billion,49 but their former executives to this day enjoy posh retirements funded by the enormous salaries and lush pension plans doled out before the crash.
Polarized like so much else in American discourse, the current financial-policy debate contrasts two ends of the policy extreme: government intervention in the financial market or a wholly market-driven financial system. This is indeed the contrast between socialism in full flower and capitalism red in tooth and claw. John Kenneth Galbraith once observed, “Where the market works, I'm for that. Where the government is necessary, I'm for that.”50 This is insightful, but of course also facile – it's not hard to be for working markets and an effective government; it's hard to know which is which.
The rest of this book is an effort to determine when markets work well for equality-enhancing finance and when the government needs to step in with monetary policy, regulation, and even government-backed programs such as new “Equality Banks” that provide vital financial services when the private market falls short.
Notes
1 * Sabrina Tavernise, “With His Job Gone, an Autoworker Wonders, ‘What Am I as a Man?’” New York Times, May 27, 2019, available at https://www.nytimes.com/2019/05/27/us/auto-worker-jobs-lost.html.
2 1. Federal Deposit Insurance Corporation (FDIC) Chair Jelena McWilliams, “Remarks to the Institute of International Finance (IFF)-Bank Policy Institute (BPI) Cross Border Resolution & Regulation Colloquium” (speech, London, July 1, 2019), available at https://www.fdic.gov/news/news/speeches/spjul0119.html.
3 2. Board of Governors of the Federal Reserve System (FRB) Chair Jerome H. Powell, “Opening Remarks” (speech, Kansas City, MO, October 9, 2019), available at https://www.federalreserve.gov/newsevents/speech/powell20191009a.htm.
4 3. Carlotta Balestra and Richard Tonkin, “Inequalities in household wealth across OECD countries: Evidence from the OECD Wealth Distribution Database,” Organization for Economic Co-operation and Development (OECD) Working Paper No. 88, 14–15 (June 20, 2018), available at http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=SDD/DOC(2018)1&docLanguage=En.
5 4. James Mackintosh, “Why Mr. Market Ignores a World in Turmoil,” Wall Street Journal, June 4, 2020, available at https://www.wsj.com/articles/why-mr-market-ignores-a-world-in-turmoil-11591272919.
6 5. Tyler Clifford, “Jim Cramer: The pandemic led to ‘one of the greatest wealth transfers in history,’” CNBC, June 4, 2020, available at https://www.cnbc.com/2020/06/04/cramer-the-pandemic-led-to-a-great-wealth-transfer.html.
7 6. FRB Gov. Lael Brainard, “Is the Middle Class within Reach for Middle-Income Families?” (speech, Washington, DC, May 10, 2019), FRB, available at https://www.federalreserve.gov/newsevents/speech/brainard20190510a.htm.
8 7. FRB Chair Jerome H. Powell, “Welcoming Remarks” (speech, Washington, DC, May 9, 2019), FRB, available at https://www.federalreserve.gov/newsevents/speech/powell20190509a.htm.
9 8. Binyamin Appelbaum, “Janet Yellen Gives an Economic Short Course, Beyond Interest Rates,” New York Times, January 12, 2017, available at https://www.nytimes.com/2017/01/12/business/janet-yellen-interest-rates.html.
10 9. Heather Long and Andrew Van Dam, “The black-white economic divide is as wide as it was in 1968,” Washington Post, June 4, 2020, available at https://www.washingtonpost.com/business/2020/06/04/economic-divide-black-households/.
11 10. Bruce Springsteen, “Glory Days,” April 3, 1982, track #10 on Born in the U.S.A., Columbia, June 4, 1984, studio album.
12 11. Vice President George H.W. Bush, “Address Accepting the Presidential Nomination at the Republican National Convention in New Orleans” (speech, New Orleans, August 18, 1988), available at https://www.presidency.ucsb.edu/documents/address-accepting-the-presidential-nomination-the-republican-national-convention-new.
13 12. David McCullough, Truman (New York: Simon & Schuster, 1992), 663.
14 13. Ali Alichi, Rodrigo Mariscal, and Daniela Muhaj, “Hollowing Out: The Channels of Income Polarization in the United States,” IMF Working Paper WP/17/244 (November, 2017), available at https://www.imf.org/en/Publications/WP/Issues/2017/11/15/Hollowing-Out-The-Channels-of-Income-Polarization-in-the-United-States-45375.