r>by Mark Gabrish Conlan • Copyright © 2023 by Mark Gabrish Conlan • All rights reserved
Last night (March 14) at 9 I watched a PBS Frontline documentary called “Age of Easy Money” on the “streaming” channel, since it was scheduled to begin at 10 p.m. but I wanted to be able to watch it an hour earlier so there’d be nothing in the way of my husband Charles and I watching the Stephen Colbert show once he got back from work at 10:45 p.m. I think “Age of Easy Money” was produced before the recent collapse of Silicon Valley Bank in early March, but they stuck an introductory tag in the program to cover it. The main focus of the program was in the Federal Reserve in general and its chair, Jerome “Jay” Powell – a Donald Trump appointee whom Joe Biden inexplicably reappointed in late 2022 as his term was about to expire – in particular. The Federal Reserve was created in 1913 by an act of Congress and signed into law by then newly elected President Woodrow Wilson. Its main purposes were to stabilize the U.S. currency and maintain economic growth, including both low unemployment and low inflation. Only it was set up in such a way that bankers would be in charge of it, and bankers in general prefer low inflation to low unemployment because they don’t want their loans repaid in dollars that aren’t worth as much as they were when they lent them in the first place. In order to avoid the perception that the Fed (as it’s universally nicknamed) would be a tool of the political branches of government – heaven forfend that the government actually have a hand in running the economy! – the Fed was deliberately insulated from political pressure as much as possible, Though its president would be appointed by the President of the United States, the Fed president’s term was deliberately staggered so it didn’t expire until two years after the presidential election, so the new President couldn’t immediately install his own person as head of the Fed.
What’s more, instead of being a part of the U.S. Treasury Department so the Fed’s monetary policies could be coordinated with the rest of the government’s fiscal policies, presenting the quite frequent situation of the administrative branches and the Fed pursuing policies at cross-purposes with each other. The Frontline documentary began with the 2008 economic crisis, though the Fed’s power to undermine the decisions of the political branches of government is an old problem. In the late 1970’s then-Fed chair Paul Volcker ran such a tight ship on monetary policies, making interest rates so high he virtually strangled the U.S. economy. According to Garry Wills, historian and Presidential biographer, Volcker’s tight-money policies made it virtually impossible for Jimmy Carter to win re-election and handed the country over to Ronald Reagan and the extreme Right, with consequences we’ve been suffering ever since. After the 2008 economic collapse, the Fed invented something called “quantitative easing,” in which the Fed would not only buy the mortgage-backed securities whose downfall had tanked the U.S. economy in the first place, they would buy U.S. Treasury bonds and other financial instruments from private banks. The idea was that the Fed would flood the banking system with cheap money, which the banks would then use to make loans that would stimulate economic growth by actually investing in goods and services. Instead the banks used the money to buy more securities, which they then sold back to the Fed, making quick and easy profits without doing anything and without having to take the risks of actually loaning money to invest in economic production. The show begins with the annual conference of world central bankers in Jackson Hole, Wyoming in August, and the 2022 speech by Jerome Powell.
It seems that this has become an annual ritual in which, because the U.S. economy is the world’s largest and the U.S. dollar is the world’s reserve currency (a fact that has shielded us from the consequences of our overall economic stupidity for decades), central bankers, government officials and the rest of the world waits with bated breath for what the Fed chair says about his upcoming economic policies. In August 2022 Powell said he was committed to reducing the inflation rate to 2 percent (the Fed’s official target) by continuing to raise interest rates after a decade of historically low ones, no matter how much “pain” – a word he repeatedly used – this caused to the rest of the economy. Since the “pain” would involve throwing millions of people out of work and a long-term dampening of economic growth, quite likely driving both the U.S. and the world economy into a recession (or even, as one particularly pessimistic interviewee on the program suggested, a depression) and doing to President Biden’s re-election chances what Paul Volcker did to Jimmy Carter’s. In between the show focused on the reaction of private investors, especially Wall Street, to any hint from the Fed that they were going to stop the age of easy money by jacking up interest rates. On at least two occasions between 2010 and 2020, hints from the Fed that they were going to hike interest rates and thereby choke off the flow of easy money led to massive drops in stock prices.
Just as the Fed had responded in 2008 to the economic crisis by flooding the banks with new capital, only to find that they were using it either to buy more securities to sell to the Fed or just pocketing the money themselves in the form of higher salaries and bonuses for their top executives, so in the late 2010’s corporate leaders took advantage of low interest rates to borrow money not to increase their productive capacity and put more people to work. Rather, they borrowed money to invest in buybacks of their own stock, with the idea of not only consolidating more and more corporate ownership into their own hands but also jacking up the price of their companies’ stock, since according to the law of supply and demand, every time you decrease the supply of something (whether canned goods or stock shares), their price goes up. One of the worst phenomena of late-stage capitalism has been the obsession with stock prices as the measure of how much a company is worth. I remember reading a book on recent financial history in which the disastrous merger of America Online and Time Warner was discussed, and the part that stuck with me was when a Time Warner board member asked why, when his company would be contributing 85 percent of the combined firm’s total revenue, their shareholders would be getting only 45 percent of the combined company’s stock. The answer he got was that AOL’s “market cap” was that much higher than Time Warner’s.
“Market cap” – short for “market capitalization” – is a ridiculous measure of a company’s value that has become all the rage in recent decades. It simply means the total number of stock shares in a company multiplied by the price of its stock per share, Reliance on “market cap” as the measure of how well a company is doing means encouraging its managers to do whatever it takes to bid the stock price up, including making highly speculative investments that will cause “bubbles” in the stock price per share. Of course, I couldn’t help but watch “Age of Easy Money” through my life-long anti-capitalist lens, and there was a reference in the program to Aesop’s fable of the frog and the scorpion – the scorpion convinces the frog to take it across the river,the frog is reluctant because he’s afraid the scorpion will bite and kill him, the scorpion says I wouldn’t do that because then we’d both die, then the scorpion takes in the frog’s back, they start across the river and midway over the scorpion stings the frog. The frog asks why the scorpion did that and doomed them both to drown, and the scorpion says, “I couldn’t help it – it’s just my nature!” It’s accordingly in the nature of capitalists to do absolutely stupid short-term things in pursuit of an immediate profit no matter what that does to the economy long-term. The only way to control them is by effective government regulation.
In this case, the political branches of government and the Fed should have come together to ensure that loose money would be used in a socially productive fashion. They could have put controls on the cash the Fed flooded the private banks with in 2008 and again in the late 2010’s so it would have been used for the kinds of productive, job-creating investments the Fed wanted to encourage. Instead, with a Republican Party so in thrall to the maxims of laissez-faire capitalism and a Democratic Party that has largely abandoned the working class in pursuit of big-money corporate donors, no solutions that might have actually reined in the power of private businesses to do what’s in their nature were politically possible. “Age of Easy Money” ends with Mohamed El-Erian, president of Queens’ College, Cambridge and chief economic adviser to the hedge fund Allianz, taking the political system to task for not addressing the real problems with the American economy: “The world of easy money went way too far. Way, way too far. Let's do the other stuff that's needed. The stuff that really promotes genuine, durable, inclusive growth and not this stuff that creates artificial growth. We are capable of producing that. None of that is in the hands of the Fed. They don't invest in infrastructure. They can't reform the tax system. They can't help labor retraining. This is a political problem.”
The story of the American economic and political system over the last 15 years is replete with missed opportunities, including one specifically mentioned in “Age of Easy Money” – the failure to address America’s crumbling infrastructure during the Trump administration, when interest rates were historically low and the costs of borrowing money to repair it would have been quite cheap. Instead Trump’s repeated declarations of “Infrastructure Week” became a recurring nationwide joke and it was left for President Biden actually to steer an infrastructure bill through Congress. But to me one of the worst missed opportunities was the rise of the Right-wing pseudo-populist “Tea Party” movement in 2010. Instead of a mass anti-capitalist movement we got a revenge-driven campaign of hate for alleged “elites” that handed control of Congress to the anti-labor, openly pro-capitalist Republicans and set the stage for the anger-fueled campaign of Donald Trump and the hatred, mostly directed against women, people of color and Queer people, that has dominated our politics ever since.
