Global Journal of Human Social Science, E: Economics, Volume 21 Issue 4

Volume XXI Issue IV Version I 11 ( E ) Global Journal of Human Social Science Year 2021 © 2021 Global Journals Transforming Financialization and Inequality in a Post-Covid World If and when the Fed acts to end Quantitative Easing, asset prices will fall sharply, as they did in December 2018. Asset prices have been inflated over the past decade by QE and stock buybacks, despite weak growth and modest support from the underlying fundamentals. The private sector debt overhang is still massive, especially given how it is distributed within the household sector today; it continues to cast an immense shadow over future growth in aggregate demand. Record low yields on junk bonds should send a cautionary note. Under the current set up, the Fed today appears to have little choice but to continue doing what it has been doing, acting as a “market maker of last resort,” despite the fact that its actions only serve to further exacerbate the concentration of income and wealthy. There have been numerous innovations, including ongoing discussions about whether central banks should create digital currencies (CBDCs) that could be deployed directly to citizens. Morgan Ricks (2016) and colleagues have proposed FedAccounts, which could be utilized by the un- and underbanked. There is little question that the financial sector will be transformed by these developments over the next decade or so. The main question is whether another financial crisis will be required to move the needle on these types of initiatives. The growing concern about inequality is assisting ongoing efforts to rethink how finance operates, though it cannot happen quickly enough. There is a need for a more robust discussion about the Federal Reserve’s conduct of monetary policy and whether and how it has contributed to financialization and rising inequality. Members of the Federal Reserve System have voiced legitimate concerns about rising inequality in speeches and the Fed regularly convenes conferences and publishes written articles, including its annual Economic Well- Being of U.S. Households about this important topic. To the best of my knowledge, no research departments within the Federal Reserve System has studied the implications of Fed policies on the distribution of income and wealth (race, gender, etc.). A no-holds review by people working outside the ce ntral bank should be made a priority for the Federal Reserve System. And it should also incorporate the economic models that are utilized both inside and outside the Federal Reserve System. It appears clear, based on comments from insiders and outsiders, that the neoclassical economics profession is not equipped to address these issues. 16 a) Marriner Eccles: Outstanding Fed Leadership By today’s standards, Marriner Eccles was an unusual choice to chair the Federal Reserve. He grew 16 For varying perspectives, see Mirowski (2013), Smith (2011), Romer (2016) and Galbraith (2009) up in Utah as the son of a Mormon banker who believed in “rugged individualism” and hard work. Marriner nev er went to graduate school or college; in fact, he never graduated from high school. He would later claim that this left him with “less to unlearn.” He arrived in Washingt on D.C. as a banker in February 1933 as one of two hundred witnesses who were to appear before the Senate Finance Committee, which was investigating the cause of the Great Depression. Eccles was the only witness among the two hundred who opposed a balanced budget, His remarkable statement at that hearing is well worth reading in full (Eccles 1933), as it provides remarkable insights. Eccles strongly recommended that the government go on a “war footing” and stimulate aggregate demand, much as it had done during World War I. He stated: “If a man owed himself he could not be bankrupt, and neither can a nation. We have got all of the wealth and resources we ever had, and we do not have the sense, the financial and political leadership, to know how to use them.” Eccles noted that the problem was not a lack of resources or wealth, but the fact that worke rs d id not have sufficient income to purchase production. He acknowledged that the expansion of credit had closed the gap during the 1920s but recognized that “eventually you reach the point of saturation – because you cannot keep forever the process of consumption on the basis of credit.” As growth in credit slowed, debtors stopped repaying debt, unemployment rose, banks failed, and the economy spiraled downward into the Great Depression. The parallels between Eccles’ analysis of the Great Depression and the global financial crisis that occurred 75 years later are striking. He focused on how wealth creation during the 1920s tilted toward the wealthy and corporations, which stymied growth in aggregate demand. Eccles criticized the sharp reduction in corporate and inheritance taxes that had been pushed through during the 1920s. These had “primarily benefited the rich and led to excessive wealth accumulation.” In combination with lax monetary policies engineered by the Federal Reserve in 1927- 1928, the result was an excessive expansion of credit that spurred the Great Depression that followed. President Roosevelt would appoint Eccles to chair the Federal Reserve System during the 1930s and 1940s. Eccles navigated monetary policy through the Great Depression and the Second World War. Most remarkably, given his childhood, Eccles had an extraordinary ability to reach beyond his own experiences. As he observed the hardship endured by the customers of his bank during the early 1930s, he concluded that self-help and hard work were not sufficient to address the Great Depression. The