Naked Capitalism cross-posted the article How the Federal Reserve Is Destroying Your Economic Future by Lynn Stuart Parramore, Senior Editor at the Institute for New Economic Thinking and a contributing editor at Alternet. The article is an interview of economist Gerald Epstein.
LP: What kind of Fed policies would help close the inequality gap in the U.S.?
GE: The Fed needs to adopt new tools, on its own and perhaps in cooperation with the other parts of the U.S. government, to improve the economy from the bottom up. This includes increasing facilities for debt forgiveness for under-water mortgages and excessive student loans; increased credit facilities for small businesses and cooperatives; helping to underwrite mechanisms for creating affordable housing in cities; and more restrictive enforcement of financial regulatory rules to help rein in excessive banker risk and pay.
But the Fed cannot reduce inequality on its own; far from it. This requires a concerted effort by the government, broadly speaking, to support a variety of efforts. These include things like raising the federal minimum wage, eliminating unfair restrictions on union organizing, increased fiscal spending on needed infrastructure with a condition that these jobs will be decent paying jobs. Of course, this is just the tip of the iceberg, and far from the question of the role of the Federal Reserve.
I also liked Epstein’s explanation of the difference between two different kinds of criticism of the FED.
LP: Many libertarians want to audit the Fed or just plain end it, while conservatives like Rick Perry label the Fed’s actions treasonous. On the other side of the political spectrum, members of the Occupy Movement and progressives like Bernie Sanders and Elizabeth Warren challenge the Fed’s ties to Wall Street. How do people with such vastly different ideologies end up distrusting the Fed?
GE: On the surface, it may look like the right wing and progressive criticism of the Fed is similar, but there are key differences. Many of those on the right distrust the Fed and want to eliminate its power in the belief that the private economy, including the private banks, will be much more efficient, productive and even democratic if they are left to themselves: in other words, the criticism of the Fed really reflects a desire to cripple the government in the service of increasing the power and authority of the market.
The perspective of most progressive critics is quite different: they don’t want to destroy the power of the Fed to regulate the macroeconomy and finance. They want to regain control over it so that it better serves the interests of the whole population.
So the right wants to destroy the power of the Fed to increase the power of finance; and the progressives want to reorient the Fed so that it will stop protecting the interests of finance and protect the interests of the broader population instead.
Now you know why I think the criticism of the FED by the likes of Rand Paul and Ron Paul show their utter misunderstanding of the FED, but I also criticize the FED sometimes.