Gucci Little Piggy

I’m truly confused about how QE3 can be supported by so many economists and pundits who also claim to care about inequality i.e. Paul Krugman.  It doesn’t make sense to me that you throw a bunch of money into the banking system which allows bankers and big borrowers to touch that money first – generating interest payments and dragging profit out of it before anyone else.

And then, as Anthony Randazzo points out, and as Tim Carney reiterates, this influx of new dollars creates inflationary pressure on those at the bottom of the economic ladder.  So there are two pressures leading to greater real economic inequality.  Here is Randazzo at Reason:

Quantitative easing—a fancy term for the Federal Reserve buying securities from predefined financial institutions, such as their investments in federal debt or mortgages—is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality formed by crony capitalism. And it is hurting prospects for economic growth down the road by promoting malinvestments in the economy.

This is ironically a trickle down monetary policy theory, where rising stock prices mean more wealth and more consumption that trickles down the economic ladder. One problem with this idea is that there is a gigantic mountain of household debt—about $12 trillion worth—that is diverting away any trickle down. An even worse assumption is that the stock market really reflects what is going on in the real economy.

Going beyond policy for a second, isn’t it interesting that everything has become so politically jumbled?  Neoliberals seemingly support QE measures, but progressives would seemingly be against letting the rich become richer and letting the poor get hit by the inflation train.  GOP types would have been in favor of Fed engagement, but then there has always been a faction of the GOP that are inflation hawks and oppose expansionary policy from the Fed.  But there are also conservatives who believe in trickle-down theory but who believe it should come from the supply side i.e. tax cuts.  When you have an election, everything looks like a political football.