Shock And Rule

February 28, 2019 6:26 AM

“From one vantage, these sentiments sound like a fussy obsession with sound money and real value. But critical scholars have also linked consumer price inflation and asset bubbles. According to Greta Krippner, “The result [of the Volcker regime] was to transfer inflation from the nonfinancial to the financial economy—where it was not visible (or conceptualized) as such.” A growing money supply (understood to include not just dollars but new credit instruments, which banks as well as governments can create) still causes prices to rise. But instead of causing a general inflation of all prices (including the price of labor), the new spiral affects only assets (from bonds to houses to Picassos), enriching the rentier class but also creating instability (as, for example, when the notional value of derivatives swells to several times the value of world GDP.) If this is the case, the troubles of the 1970s simply mutated, like so many other maladies of capitalism, into new forms.” Other People’s Blood. (N+1)
posted by The Whelk (9 comments total)

Mainstream American political culture has spent the last 40 years or so working under the assumption that the economic sphere and the political sphere are disjoint... but beyond that, also working under the delusion that everyone has always thought of the political and economic spheres as disjoint, diligently erasing from memory all pre-1979 political-economic thought and dismissing anyone who says it's ever been otherwise as a swivel-eye marxist loon.¹

This article is a contribution to our collective un-forgetting of political economy and is as such deeply valuable.

1: n.b.: I speak, here, as a legitimate swivel-eyed marxist loon.
posted by Reclusive Novelist Thomas Pynchon at 8:00 AM on February 28, 2019 [9 favorites]

There is proven value in technocratic administration of the central bank. That doesn't mean the underlying policy goals said institution is required to attempt to square with reality shouldn't be reached through political decisions.
posted by wierdo at 8:24 AM on February 28, 2019

wierdo: what does "technocratic" mean to you?
posted by Reclusive Novelist Thomas Pynchon at 8:45 AM on February 28, 2019 [1 favorite]

wierdo: what does "technocratic" mean to you?

His comment seems perfectly understandable to me, RNTP. At the end of the day, international markets and national actors respond predictably to central bank policy. The technicians of the bank (and certainly their political overlords) understand this and develop policy accordingly.

'Policy goals' can be price stability, employment levels, and distribution of wealth (in at least two directions) among other things. Maybe replace his 'proven value' with 'structural correlation'? And he even says directly that these policy goals should/could be selected democratically.

Just because it doesn't currently happen very democratically doesn't mean his description isn't good.
posted by Reasonably Everything Happens at 9:51 AM on February 28, 2019 [1 favorite]

Telling that an article that wants to be critical of Volker and his across-the-political-spectrum admirers still doesn't present any alternative that lay before Volker in 1979 to combat inflation, or argue that inflation didn't need to be combated. There is something to be said for the notion that high interest rates distorted the capital investment incentives of the 1980s ... but we're 20 years into the Fed intentionally managing rates to be as low as possible (with some half-hearted tightening in 2005-2007). If that was Volker's sin --- it's been atoned for.
posted by MattD at 10:02 AM on February 28, 2019 [1 favorite]

REH: The reason I'm asking is because "technocratic" is a polyvalent word. I'm most familiar with it used to mean that experts with a power base independent of democratic control should themselves actually set policy goals, rather than merely efficiently implementing policy goals set by leaders responsible to the electorate.

The article positions Volcker as being something like a technocrat in the sense of the word that I understand, with his appointment understood as the capitulation of an elected leader (Carter) to the demands of nondemocratic economic managers. See this quote from Gerald Friedman:

I remember sitting in the lounge at the National Bureau of Economic Research that day when everyone, both economists friendly to and opposed to the Carter Administration, understood what happened. In replacing Federal Reserve Board Chairman G. William Miller with Paul Volcker, President Carter had finally caved to Wall Street’s demands for an aggressive attack on inflation without regard for the social costs.

To my eye, using "technocracy" to mean "there should be a separation between the people who set economic policy goals and the people who design and implement the techniques to reach those goals" waters down the word beyond recognition. More importantly, it allows people who are arguing for the controversial and somewhat disturbing technocracy-definition-1 ("wall street, rather than elected leaders, should have control over the setting of economic policy goals") to pretend that they're just in favor of the relatively uncontroversial technocracy-definition-2 ("people who understand banking should implement the policy vision of democratically elected leaders, with the leaders setting goals but staying clear of the day-to-day management of the economy").
posted by Reclusive Novelist Thomas Pynchon at 10:24 AM on February 28, 2019 [3 favorites]

I remember seeing one of these 2x4's on a guys desk at the Fed. Seems like Volcker was not popular in the building trade at the time.
posted by MtDewd at 10:36 AM on February 28, 2019 [2 favorites]

-"where is politics in the money view"*
-An Unprecedented Short History of Fed Independence
posted by kliuless at 9:06 PM on March 3, 2019

Yes, I wasn't using the term technocratic in the sense that "very smart people" should just get to do whatever the hell they want.

It occurs to me that there is a sticky problem that hasn't been brought up here. While it's pretty much indisputable that the stability of inflation has led to enormous economic gains, that stability at a very low rate is a big factor in increasing wealth inequality. Changes in tax policy have exacerbated that effect into what we see today.

I think it's very clear at this point that we either need significant tax increases or greater inflation (and possibly both) if we want to solve the problem. I suspect that it would be better to continue to maintain low inflation targets and have the tax increases, but that may or may not be politically possible.
posted by wierdo at 7:11 PM on March 5, 2019