Monetary policy, inequality and political instability

Abstract

Voters in the industrialised countries are increasingly expressing dissatisfaction by dissenting from the established political parties and candidates. Based on the concepts of justice by Hayek, Rawls and Buchanan, we argue that the growing dissatisfaction is rooted in the asymmetric pattern of monetary policies since the mid‐1980s for two reasons. First, the structurally declining interest rates and the unconventional monetary policy measures have granted privileges to specific groups. Second, the increasingly expansionary monetary policies have negative growth effects, which have reduced the scope for compensation of the ones excluded from the privileges. As a result, the acceptance of the prevailing economic and political order is undermined and political instability increases.

The impact of (un)conventional expansionary monetary policy on income inequality – lessons from Japan

“…3 These include the asset price bubble of the late 1980s, the dot-com bubble or the financial market frenzy before the 2007/8 Lehman crash. 4 1971 1976 1981 1986 1991 1996 2001 2006 Percent Percent M0 growth rate (lhs) Top 10 % income share (rhs) The trends depicted in Figures 3 and 4 are in line with the hypothesis that expansionary monetary policy may increase inequality through the asset price channel (Williamson, 2009;Ledoit, 2011;Rawdanowicz et al, 2013;Hülsmann, 2014;Israel 2017;Duarte and Schnabl, 2019).…”

The fiat money illusion: On the cost‐efficiency of modern central banking

“…These results show that from the vantage point of conventional business accounting, a return to gold as an anchor of the money stock is economically feasible. This conclusion does not take into account other potential benefits, such as greater economic and financial stability (Borio & Nelson, 2008;Huerta de Soto, 1995Schnabl & Hoffmann, 2008), reduced moral hazard that would arise from ending the political control over the base money supply (Hayek, 1978;Hülsmann, 1996Hülsmann, , 2006 and reduced inequality in terms of income and wealth as a result of more restrictive monetary policy (Duarte & Schnabl, 2019;Hülsmann, 2014;Israel, 2017;Israel & Latsos, 2020;Saiki & Frost, 2014).…”

Reasons for the Demise of Interest: Savings Glut and Secular Stagnation or Central Bank Policy?

“…Finally, Summers (2014) argues that increased income inequality reduces (increases) the propensity to consume (save). However, growing income and wealth inequality may not be driven by "the laws of capitalism" (as, for instance, suggested by Piketty 2014), but by expansionary monetary policies (see Duarte and Schnabl 2018). The redistributive effects of persistently loose monetary policies have several dimensions.…”