How to Use Fiscal and Monetary Policy to Make Us Rich Again


Evonomics has the article How to Use Fiscal and Monetary Policy to Make Us Rich Again – The easiest way to return to Golden Age tranquility and equality is to empower fiscal policy.

The timing suggests Ronald Reagan had something to do stagnating wages. That makes sense. Reagan cut taxes on the rich, deregulated the economy, eviscerated the labor unions and created the neoliberal order that still rules today. But perhaps an even more significant change is the tiny, technical and tedious shift from fiscal to monetary policy.
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Fiscal policy, by increasing government spending, creates jobs and so raises wages even in the private sector. Monetary policy works mostly through the wealth effect. Lower interest rates almost automatically raise the value of stocks, bonds, and other real assets. Fiscal policy makes workers richer, monetary policy makes rich people richer. This, I suspect, explains better than anything else why monetary policy, even extreme monetary policy remains more respectable than even conventional monetary policy.

These observations strongly match what I have observed since Lyndon Johnson’s infamous guns and butter policies, followed by the period where monetary policy tried to stimulate the economy at the same time fiscal policy was working to contract the economy. I have often thought that our economy and sopciety would be much stronger if monetary and fiscal policy were working toward the same end instead of fighting each other.

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