Paul Krugman writes about QE and easy money as being beneficial for the bulk of Americans. But he gives reasons that could justify using easy money all the time, even in healthy business cycles.
“The bottom three-quarters of the wealth distribution basically has no investment income.”
This fact applies all the time in the economy… So why not use easy money all the time? We should just make easy money the accepted monetary policy.
Krugman will not see this issue as I see it because he sees the Fed rate stuck at the ZLB due to a large spare capacity. Even if he does not see large spare capacity, he wants to try to push monetary policy past the natural full employment level to generate some wage and price inflation.
But I see very little spare capacity left. In that sense, the capital markets should have been disciplined more. Keynes recognized that keeping interest rates low could sustain a boom, but he also warned that higher rates would be more socially beneficial after all was said and done in a business cycle…
“… it is, I think, arguable that a more advantageous average state of expectation might result from a banking policy which always nipped in the bud an incipient boom by a rate of interest high enough to deter even the most misguided optimists. The disappointment of expectation, characteristic of the slump, may lead to so much loss and waste that the average level of useful investment might be higher if a deterrent is applied.” Keynes
We could say that easy money makes everyone’s life better, so why not use it all the time? Well, the real issue is creating an environment for a higher level of productive investment. Brad DeLong is writing about this now… He wants to know to what extent profits are being enjoyed as rents as opposed to productive investment that benefits workers too.
“What I would like to see Emmanuel and Gabriel guess is the share of wealth that is productive–that boosts the productivity of the working class and that shares those productivity benefits with workers–and the share of wealth that is extractive–that are pure claims on income rather than useful instruments of production, and thus that erode rather than boost the incomes of others.” Brad DeLong
If easy money is encouraging an environment that raises the share of wealth that is extractive, then easy money is not beneficial to the working class.
Monetary policy must discipline the capitalists with a policy tight enough to raise the “level of useful investment” as Keynes puts it. In this light, easy money may not be helping the working class.