I’m dubbing this, “The Jay Powell Effect”. The virility of the meme never ceases to amaze.
Twitter exploded yesterday after Federal Reserve Chairman Jay Powell’s video announcement that “[wealth] inequality is something that’s been with us increasingly for more than four decades and it’s not really related to monetary policy it’s more related to… there are a lot of theories on what causes it…but its been something that’s more or less been going up consistently for four decades and there are a lot of different theories.”
Yikes, not exactly silver tongued there Jay. As our readers know full well, wealth and income inequality has been on the rise for the better part of 5 decades rather than four, and to say its unrelated to monetary policy is certainly a convenient position for the chairman of central economic planning to take.
Could growing gaps in wealth and income inequality be attributed to more than just the ending of the gold standard in 1971? Almost certainly. But as Buffet says, show me the incentives and I’ll show you the outcome. Austrian macro economic theory is less interested in attributing specific casual relationships to policy decisions, but rather looking at the broader effects of policy direction as a whole, and alignment of incentives for entrepreneurs and regulators as the playing fields shift.
Asset inflation is, no doubt, the largest contributor to growing wealth inequality. Those with the largest net share of assets have the house advantage, with the extra ace in the sleeve for those with closer proximity to the fiat spigot and cheap credit enabled by (Yes Jay) our monetary policies. There is a reason why the financial sector is one of the fastest growing corporate profit sectors in the US, it isn’t because these corporations are getting more efficient and servicing the wants and needs of the consumer. The money-ness of assets is an incentive, and no one is better than their incentives.
Funny enough, we were never reached out to by Jay and crew, regarding our theories on the matter. But that doesn’t stop twitter from planting little seeds of doubt with every wtf happened in 1971 reference.
Book of the Month:
The Dao of Capital: Austrian Investing in a Distorted World
-“Rather than pursue the direct route of immediate gain, we will seek the difficult and roundabout route of immediate loss, an intermediate step which begets an advantage for greater potential gain.”
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