by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Yes, you read that correctly. The Federal Reserve, more than four years into the administration of a president known for his desire to “tax the rich,” continues to pursue monetary policies that run counter to that goal. Global economist David Malpass explains in a new Forbes magazine column. Malpass urges President Obama to choose a new Fed chairman who will change course.
The poor performance is the result of policies that seem designed to make the rich richer and leave the middle class stagnant and more dependent on government. While massive growth in government spending is presented to the public as income redistribution, the reality is even worse. Much of the spending ends up in the greater Washington area, which has one of the highest and fastest-growing median incomes in the nation.
The Fed manages what has become the biggest transfer program to the rich, channeling cheap credit to the government and big business. It comes at the expense of small businesses, where most of the entry-level jobs are created. Black teen unemployment stood at 41.6% in July, a stark challenge for the Fed, which has a mandate to achieve maximum employment.
Once a champion of market prices, the Fed is setting short-term interest rates artificially low. This distorts the economy and markets, keeps the dollar weak and increases commodity prices. That benefits the rich, who own and trade commodities, but hammers average Americans, who need low prices and can’t hedge against asset price inflation. The Fed’s policy of lowering long-term interest rates helps the rich even more–they do most of the long-term borrowing, using their high incomes and valuable assets as collateral. The burden falls on the retirement funds and savings accounts of the middle class.
As the President considers candidates for the Federal Reserve, at stake is the current policy of transferring income and wealth from the middle class to the rich. The theory is that a bigger government and an interventionist Fed are somehow reducing the maldistribution of income–”making the rich pay their fair share.” This ignores history, recent performance and the reality of the global economy: The income and wealth of the rich will move toward lower tax rates and strong and stable currencies, burdening the middle class with their government’s debt.