The View From 1776
Tuesday, January 14, 2014
The Fed’s Quintessential “Trickle Down” Economics
Read Thomas Sowell’s Of All The Left’s Big Lies, ‘Trickle Down’ May Be The Biggest
As Professor Sowell writes, no right-wing economist has ever advocated “trickle down” economics. But devotees of Keynesian economics, most of whom are left-wing liberal-progressives, heartily endorse the Federal Reserve’s loose-money, quantitative-easing monetary policy.
The Fed’s quantitative easing is nothing more than “trickle down” economics. The Fed has lavished stupendous amounts of money on the top 1%, hoping that benefits will trickle down to the average person outside of Wall Street.
In Keynesian theory, loose monetary policy is designed to raise stock and bond market prices. It has done this overly well.
Higher stock prices are supposed to create a “wealth effect” that will trick heavily indebted consumers into believing that they are again rich and accelerate their consumption expenditures. This, in turn, is supposed to induce manufacturers to ramp up production and rehire the workers laid off in the 2007-2008 Great Recession.
In the real world, however, none of this has worked in accord with Keynesian theory.
For five years the Fed has flooded the banks and other financial institutions with trillions of dollars, all of which initially go to banks and dealers in Treasury and mortgage-backed securities. Banks, brokers, and speculators have made prodigious fortunes the last few years.
Yet hardly any of this Federal Reserve largesse has yet trickled down to the rest of the country. Unemployment remains very high; increasing numbers of people are dropping out of the work, because they can’t find jobs. And the economy still is limping along at the slowest recovery pace in many decades.