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ABSTRACT
Since the global financial crisis burst in 2008, central bankers have been at centre stage in addressing its negative consequences across the economic systems of many countries. This has been further noticed in the aftermath of the pandemic crisis that erupted at the beginning of 2020 at global level, when a number of governments did intervene also in a rather ‘unconventional’ way to support economic activity through public spending. In both circumstances, central bankers have been in a position to satisfy private interests of the relevant stakeholders even though this has been affecting both income and wealth distribution against the common good. This paper investigates the political benefits that these ‘unconventional’ policy interventions have elicited in advanced economies to point out the political and distributional consequences of them, suggesting an alternative monetary policy stance that considers climate-related issues.
Disclosure Statement
No potential conflict of interest was reported by the author(s).
Notes
1 Note, however, that some heterodox economists, such as Fiebiger and Lavoie (Citation2021), consider these ‘unconventional’ monetary policies as inspired by monetarism, because they concern the direct ‘money channel’, that is, the transmission mechanism that monetarists consider operating between the monetary base (central bank money) and the total money supply. This is partly true but, as a matter of fact, these ‘unconventional’ monetary policies also operate through other channels, as this paper explains.
2 Initially, this channel means that banks sell their government bonds to the central bank and then buy these bonds again, so that the return on them decreases twice (one time with the first kind of transactions and another one with the second kind of transactions). If so, then the consequences of this channel are relevant for the whole economic system, since the return on government bonds decreases considerably: the public sector benefits from it, as it has lower interests to pay, but the losers are the government bond holders. For instance, retired people may lose part of their pension, when the latter is financed with the return on government bonds. However, this channel means also that banks sell government bonds, and then buy stocks or other assets to get higher returns, since the return on government bonds is decreasing. In that case, stock prices experience a boom: the winners are thereby wealthy people, namely, those with the highest share of stocks in their own portfolio. We owe this remark to an anonymous referee.
3 To be true, major central banks also entered into swap agreements between themselves, to make sure that their own banking systems could obtain all liquidity denominated in the relevant foreign currencies, as several interbank transactions are carried out across the foreign exchange market. We owe this remark to an anonymous referee.
4 This does not mean, of course, that central bankers will remain in power necessarily. However, in light of the fact that, in a number of countries, elected politicians appoint central bankers, if the former remain in office, the latter are likely to do the same, too. We owe this remark to an anonymous referee.
5 In this regard, notice that when the return on government bonds diminishes as a result of a reduction in the policy rates of interest, thereby reducing borrowing costs, debtors take advantage of such a situation while creditors lose from it. This induces a number of creditors to borrow from the banking sector to buy something, houses in particular, which can inflate a real-estate bubble as explained above. If rich people behave like this, they are in a position to take advantage of ‘unconventional’ monetary policies owing to the stock bubble, the housing bubble, and also the tax cuts (for rich people mainly) induced by the fiscal channel. These advantages for them are likely to be higher than the losses rich people may record with the decrease of bonds’ returns resulting from ‘unconventional’ monetary policies. All in all, both wealth and income inequalities increase thereby (even though the middle class benefits from such policies as regards the reduction of borrowing costs for home-ownership), because middle-class people suffer the increase of housing prices and do not benefit much from tax cuts and the stock prices bubble. For poor people this is even worse. We owe this remark to an anonymous referee.
6 This is the essential reason that makes the ‘Basel agreements’ a factor of financial instability and crisis. Hence, these agreements should be abolished, to be replaced by the monetary–structural reform proposed in this section, even though the highly financialized system characterizing advanced economies does not make such a reform easy to accept at political level and to implement in the existing financial framework.
7 To be sure, the fiscal channel explained in this paper can be used by the public sector to support research and development activities that are ‘green’, and for ‘green’ education of poor people. This could support the ecological transition and the creation of jobs for poor people during such a transition. Further, the public sector could invest in the construction of ‘green’ houses to lower their market prices and thereby to reduce the losses of poor people because of the housing bubble inflated by ‘unconventional’ monetary policies. We owe this remark to an anonymous referee.