Spoiler alert, this is not a trick question. Give one human $10 (about 7.5 Euros for Ms Merkel) and another, luckier one, $1,000,000. The question is which of these two will spend a larger proportion of their gift on buying stuff? And I don’t mean the really big stuff like houses and cars and humungous diamonds. Whoever answered the one with $10 gets to make economic policy that affects the lives of billions. The others are to be rounded up and sent so far away that they can do no further harm.
My dear Presidents, Prime Ministers, Central Bankers pay close attention here as you’re betting on a losing proposition to keep the world economy from collapsing. I know that you all have serious short term dependency issues – need to look good for next election, in case I can’t buy it – but this bet on inequality to keep hyper-inflation at bay is a little like the comfort of the extra time one gets jumping from an airplane rather than a three story walkup.
So, that’s the upside of inequality. Almost all of the money being created by low interest rates and fancy central bank policies like Quantitative Easing (QE 1, 2, 3,…..) is being sponged up by Ms Whoopie-Do IveGotWayMoreThanINeed and Mr. Yahoo WhateverShallIDoWithAllThatExtraCash. The paltry bit that’s left trickles into the hands of Mr. and Ms. GreatUnwashed, the guys and gals who rush to pay bills and spend frivolously to feed and clothe themselves.
So, this growing inequality is happily keeping hyper-inflation at bay. It’s true that it’s also hollowing out the middle class, the great buttress of democracy, and making more people desperately anxious about paying bills and keeping a roof over their heads. But if just a little more of the central bankers’ largesse found its way into the hands of these people, wheel barrows to hold the money needed for even the most basic transactions, like buying a loaf of yesterday’s bread, would become quite scarce and prohibitively expensive (visions to make Angela tremble).
Perhaps it’s time for a new policy, one without the soothing nonsense about how a little more austerity by governments and easy money policies – for the benefit of the awesomely wealthy – will bring growth and prosperity by the end of next year (or the year after or later or just before never).
Governments that want growth and economic activity that helps most people, without the specter of hyper-inflation, will have to stop enriching the already fabulously fat cats through ineffective money policies and address the inequality problem. This will put money into the hands of those who will spend rather than hoard it in off-shore tax havens and money laundries. And it doesn’t require a genius to guess that this means resorting to the R word, the hobgoblin of the R people in America and the C people everywhere else. OK, I’ll come clean. We need Redistribution policies that are fair and we need them in spite of the Republicans and Conservatives who think Redistribution is like getting infected with the deadly Socialist virus. It will create a wave which can lift most people out of the endless financial crisis and, perhaps, even save democracy so that the really obscenely wealthy can enjoy their lives of luxury in relative safety.
