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The Art of the New Deal. (Photo: David McNew/Getty Images)
From a certain angle, Bernie Sanders's case for socialism is the same as Margaret Thatcher's for "free market" capitalism: "There is no alternative."
In a speech at George Washington University on Wednesday afternoon, the Vermont senator made several arguments for his political philosophy. Many of these aimed to dispel the misconception that the self-avowed socialist and his "political revolution" are trying to do anything "particularly radical." Rather, Sanders suggested that what he calls "democratic socialism" is akin to 21st-century New Deal liberalism. Seventy-five years ago, the United States had a president who insisted that "true individual freedom cannot exist without economic security and independence" and proposed the establishment of a "Second Bill of Rights" -- one that would guarantee all Americans health care, housing, and "a useful and remunerative job." In a sense, Sanders's modest ambition is to revive and update the conventional wisdom of the Democratic Establishment circa 1944.
This is a sound rebuttal to the claim that Sanders's vision is extreme or un-American. Though, for that reason, it does little to clarify why the senator insists on branding his ideology with a term that much of the American electorate still associates with Soviet communism.
Nevertheless, by coopting the right's expansive definition of "socialism"--which holds that any major government intervention in the economy (that conservatives don't like) is a fulfillment of Marx's vision--Sanders was able to recast the terms of America's economic debate.
"Overnight, Wall Street became big-government socialists and begged for the largest federal bailout in American history--over $1 trillion from the Treasury and even more from the Federal Reserve. But it's not just Wall Street that loves socialism--when it works for them. It is the norm across the entire corporate world."
"In 2008, after their greed, recklessness, and illegal behavior created the worst financial disaster since the Great Depression, with millions of Americans losing their jobs, their homes and their life savings, Wall Street's religious adherence to unfettered capitalism suddenly came to an end," Sanders said Wednesday. "Overnight, Wall Street became big-government socialists and begged for the largest federal bailout in American history -- over $1 trillion from the Treasury and even more from the Federal Reserve. But it's not just Wall Street that loves socialism--when it works for them. It is the norm across the entire corporate world."
One can pick many bones with Sanders's wording here (e.g., Wall Street was a beneficiary of "big government" largesse long before 2008). But his remarks call attention to an important fact: Americans already live in a country where unelected bureaucrats pick economic winners and losers, where public policy exerts a massive influence over the distribution of income, where some indolent Americans live off the hard labor of others, and where the state directs investment toward official, conscious ends. If these are the defining features of socialism, then the United States lost the Cold War before it began, and the real debate between left and right in the U.S. isn't over whether "big government" should intervene in markets, or even how much it should, but rather who should have a say over how it intervenes -- and whose interests such "socialism" should serve.
There may be more politically optimal ways of making this point (or at least, ones that do less violence to Marx's conception of socialism). But Sanders's broad argument is a vital one.
America's existing political economy is much easier to defend if one posits that the gross inequities it produces are ordained by an invisible hand. If some natural economic process dictates that wage growth must be tepid while corporations sit on cash, or that urban workers must be rent burdened while landlords live high off their labor, or that major financial institutions must be insulated from risk while underwater homeowners are left to drown, then one can plausibly argue that government action to alter such outcomes would be hubristic and self-defeating. Who is man to challenge the wisdom of the market gods? By contrast, if the electorate were to recognize that these outcomes are largely determined by public policy, then apologists for the existing order would have a much harder time rationalizing acquiescence.
Of course, many libertarians will readily concede that the state has its grubby fingers all over American capitalism. They disdain the bank bailouts, the corporate subsidies, and the massive government jobs program that is the military-industrial complex. Some may even object to the generous patent protections the state uses to shelter drug companies from the threat of competition. But even if it were politically possible to excise all these "distortions," our nation's economy would still bear the imprint of human hands.
After all, legal markets are themselves a kind of "big government" program. Absent a sovereign entity capable of enforcing contracts by commanding a monopoly on violence, mass commerce between strangers is nigh-impossible. Less abstractly, the introduction of private property across the North American continent required massive state violence and investment. Meanwhile, some human agency must decide roughly how much sovereign currency should be in circulation at any given time, and this decision will inevitably have large, economy-wide implications on how markets function and whose interests they best serve. Tight money will privilege those rich in cash by increasing the value of their holdings -- and thus, the interest rates they can charge for lending them. Loose money can privilege borrowers by triggering inflation that reduces the cost of their debts.
These points may seem banal. Sophisticated conservative thinkers are well aware that money doesn't grow on trees and markets do not make themselves. But efforts to naturalize the economy's basic ground rules -- by obscuring the state's inescapable role in setting them -- remain pervasive in America's political discourse.
The case for "re-politicizing" the foundations of our economy has rarely been stronger than it is today.
Which is unfortunate. The case for "re-politicizing" the foundations of our economy has rarely been stronger than it is today. As Sanders suggests, the 2008 crisis exposed the depths of the financial industry's dependence on the U.S. government -- and simultaneously the U.S. government's extraordinary capacity to shelter its favorite constituents from the slings and arrows of outrageous irresponsibility. Less transparently, the crisis and the long, lackluster recovery also exposed the profound, and inescapably political, powers wielded by the Federal Reserve.
As Mike Konczal and J. W. Mason wrote for the Roosevelt Institute in 2017:
During 2007 and 2008, it was the decisions of the Fed that determined which troubled financial institutions would survive, which would be absorbed by other institutions, and which, like Lehman Brothers, would be allowed to fail. During the summer of 2008, when the commercial-paper market that provides short-term financing to the nation's largest corporations had essentially ceased to function, the Fed stepped in to replace private lenders. By making loans directly to nonfinancial as well as financial businesses that had previously borrowed in the commercial-paper market, the Fed effectively replaced private banks as the source of short-term loans for corporate America.
During the slow recovery that followed, the Fed continued purchasing large volumes of mortgage-backed securities as well as longer-dated treasuries through the [quantitative easing] programs. The explicit logic of these policies was to induce private financial institutions to hold a different mix of assets than they would have chosen on their own-- ultimately in the hopes of financing activities that would eventually boost aggregate demand.
In other words, unelected bureaucrats picked the finance industry's winners and losers, created a public option for short-term corporate financing, and manipulated asset prices by creating artificial demand for various securities, all for the sake of promoting their conception of the public interest.
These moves, combined with the Fed's more mundane decision to start hiking interest rates (which is to say, to deliberately cool the economy) even as labor-force participation, wages, and inflation all remained aberrantly low, were among the most consequential policy choices of the past decade. By driving up the value of financial assets, quantitative easing exacerbated wealth inequality. By suppressing demand in a noninflationary environment, the Fed's rate hikes since 2015 have served to needlessly consign Americans to involuntary unemployment and reduce the leverage workers exercise over their employers. When one further considers the myriad other ways the Fed could have attempted to stimulate demand -- but chose not to -- the weight of its decisions grows even heavier. And yet the supposedly self-governing American people were almost unanimously oblivious to these decisions, which were treated as purely technical matters that required little to no democratic input.
Elite conservatives attuned to these developments did not hesitate to criticize the Fed for its socialistic violations of the free market's purity. But as Konczal and Mason explain, this critique is naive:
For many -- both inside and outside the Fed -- these kinds of large-scale asset purchases represent undesirable "distortions" of financial markets. But, as Bernanke (2017) notes, these criticisms are incoherent. The goal of all monetary policy is to "set financial conditions consistent with full employment and stable prices." So it is always going to produce a different pattern of asset prices and yields than it would have obtained otherwise.
And in any case, there is no such thing as "undistorted" values of interest rates, terms, and risk premia, etc.--these are always influenced by the policy choices of both the central bank and the elected government ... We should adopt a more expansive -- and thus more realistic and more politically productive--view of the central bank's role in directing credit and shaping outcomes in financial markets. The crisis and the response to it are not exceptional. They reflect the need for, and the reality of, conscious planning in financial markets.
When the Federal Reserve first began purchasing mortgage-backed securities in the aftermath of the crisis, it did so to facilitate interbank lending by removing "toxic assets" from the private sector's balance sheets. But by keeping the policy in place long after financial stability was restored, the central bank has effectively been encouraging banks to make more housing loans by inflating demand for mortgage-backed securities. Which may be a fine policy. But if our central bank is now in the business of subsidizing certain forms of credit creation -- to advance specific social goals (such as home ownership)--should we perhaps have a democratic debate about which social goals we would like to pursue? For example, if the demos decided that long-term human survival was a worthy objective, perhaps the Fed could "finance investments that address climate change, including the development of non-carbon energy sources and building retrofits to reduce energy use."
Judy Shelton, the top candidate for Donald Trump's next Fed nomination, understands the hazards of acknowledging that America already resembles a socialist country, at least in the nomenclature of a conservative polemicist. Like many other conservatives, Shelton recoils from the realities of modern monetary policy and (naively) advocates a return to a natural, prepolitical market economy. As she told the Financial Times:
"How can a dozen, slightly less than a dozen, people meeting eight times a year decide what the cost of capital should be versus some kind of organically, market-supply-determined rate? The Fed is not omniscient. They don't know what the right rate should be. How could anyone?" Ms. Shelton said.
"If the success of capitalism depends on someone being smart enough to know what the rate should be on everything ... we're doomed. We might as well resurrect Gosplan," she said, referring to the state committee that ran the Soviet Union's planned economy.
Sanders's implicit argument is quite similar: If our "capitalist" economy depends on constant discretionary interventions by policy-makers, we might as well determine those interventions through democratic debate -- and aim them at advancing the best interests of the 99 percent.
We are all "socialists" now. Some of us just happen to be democratic ones.
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From a certain angle, Bernie Sanders's case for socialism is the same as Margaret Thatcher's for "free market" capitalism: "There is no alternative."
In a speech at George Washington University on Wednesday afternoon, the Vermont senator made several arguments for his political philosophy. Many of these aimed to dispel the misconception that the self-avowed socialist and his "political revolution" are trying to do anything "particularly radical." Rather, Sanders suggested that what he calls "democratic socialism" is akin to 21st-century New Deal liberalism. Seventy-five years ago, the United States had a president who insisted that "true individual freedom cannot exist without economic security and independence" and proposed the establishment of a "Second Bill of Rights" -- one that would guarantee all Americans health care, housing, and "a useful and remunerative job." In a sense, Sanders's modest ambition is to revive and update the conventional wisdom of the Democratic Establishment circa 1944.
This is a sound rebuttal to the claim that Sanders's vision is extreme or un-American. Though, for that reason, it does little to clarify why the senator insists on branding his ideology with a term that much of the American electorate still associates with Soviet communism.
Nevertheless, by coopting the right's expansive definition of "socialism"--which holds that any major government intervention in the economy (that conservatives don't like) is a fulfillment of Marx's vision--Sanders was able to recast the terms of America's economic debate.
"Overnight, Wall Street became big-government socialists and begged for the largest federal bailout in American history--over $1 trillion from the Treasury and even more from the Federal Reserve. But it's not just Wall Street that loves socialism--when it works for them. It is the norm across the entire corporate world."
"In 2008, after their greed, recklessness, and illegal behavior created the worst financial disaster since the Great Depression, with millions of Americans losing their jobs, their homes and their life savings, Wall Street's religious adherence to unfettered capitalism suddenly came to an end," Sanders said Wednesday. "Overnight, Wall Street became big-government socialists and begged for the largest federal bailout in American history -- over $1 trillion from the Treasury and even more from the Federal Reserve. But it's not just Wall Street that loves socialism--when it works for them. It is the norm across the entire corporate world."
One can pick many bones with Sanders's wording here (e.g., Wall Street was a beneficiary of "big government" largesse long before 2008). But his remarks call attention to an important fact: Americans already live in a country where unelected bureaucrats pick economic winners and losers, where public policy exerts a massive influence over the distribution of income, where some indolent Americans live off the hard labor of others, and where the state directs investment toward official, conscious ends. If these are the defining features of socialism, then the United States lost the Cold War before it began, and the real debate between left and right in the U.S. isn't over whether "big government" should intervene in markets, or even how much it should, but rather who should have a say over how it intervenes -- and whose interests such "socialism" should serve.
There may be more politically optimal ways of making this point (or at least, ones that do less violence to Marx's conception of socialism). But Sanders's broad argument is a vital one.
America's existing political economy is much easier to defend if one posits that the gross inequities it produces are ordained by an invisible hand. If some natural economic process dictates that wage growth must be tepid while corporations sit on cash, or that urban workers must be rent burdened while landlords live high off their labor, or that major financial institutions must be insulated from risk while underwater homeowners are left to drown, then one can plausibly argue that government action to alter such outcomes would be hubristic and self-defeating. Who is man to challenge the wisdom of the market gods? By contrast, if the electorate were to recognize that these outcomes are largely determined by public policy, then apologists for the existing order would have a much harder time rationalizing acquiescence.
Of course, many libertarians will readily concede that the state has its grubby fingers all over American capitalism. They disdain the bank bailouts, the corporate subsidies, and the massive government jobs program that is the military-industrial complex. Some may even object to the generous patent protections the state uses to shelter drug companies from the threat of competition. But even if it were politically possible to excise all these "distortions," our nation's economy would still bear the imprint of human hands.
After all, legal markets are themselves a kind of "big government" program. Absent a sovereign entity capable of enforcing contracts by commanding a monopoly on violence, mass commerce between strangers is nigh-impossible. Less abstractly, the introduction of private property across the North American continent required massive state violence and investment. Meanwhile, some human agency must decide roughly how much sovereign currency should be in circulation at any given time, and this decision will inevitably have large, economy-wide implications on how markets function and whose interests they best serve. Tight money will privilege those rich in cash by increasing the value of their holdings -- and thus, the interest rates they can charge for lending them. Loose money can privilege borrowers by triggering inflation that reduces the cost of their debts.
These points may seem banal. Sophisticated conservative thinkers are well aware that money doesn't grow on trees and markets do not make themselves. But efforts to naturalize the economy's basic ground rules -- by obscuring the state's inescapable role in setting them -- remain pervasive in America's political discourse.
The case for "re-politicizing" the foundations of our economy has rarely been stronger than it is today.
Which is unfortunate. The case for "re-politicizing" the foundations of our economy has rarely been stronger than it is today. As Sanders suggests, the 2008 crisis exposed the depths of the financial industry's dependence on the U.S. government -- and simultaneously the U.S. government's extraordinary capacity to shelter its favorite constituents from the slings and arrows of outrageous irresponsibility. Less transparently, the crisis and the long, lackluster recovery also exposed the profound, and inescapably political, powers wielded by the Federal Reserve.
As Mike Konczal and J. W. Mason wrote for the Roosevelt Institute in 2017:
During 2007 and 2008, it was the decisions of the Fed that determined which troubled financial institutions would survive, which would be absorbed by other institutions, and which, like Lehman Brothers, would be allowed to fail. During the summer of 2008, when the commercial-paper market that provides short-term financing to the nation's largest corporations had essentially ceased to function, the Fed stepped in to replace private lenders. By making loans directly to nonfinancial as well as financial businesses that had previously borrowed in the commercial-paper market, the Fed effectively replaced private banks as the source of short-term loans for corporate America.
During the slow recovery that followed, the Fed continued purchasing large volumes of mortgage-backed securities as well as longer-dated treasuries through the [quantitative easing] programs. The explicit logic of these policies was to induce private financial institutions to hold a different mix of assets than they would have chosen on their own-- ultimately in the hopes of financing activities that would eventually boost aggregate demand.
In other words, unelected bureaucrats picked the finance industry's winners and losers, created a public option for short-term corporate financing, and manipulated asset prices by creating artificial demand for various securities, all for the sake of promoting their conception of the public interest.
These moves, combined with the Fed's more mundane decision to start hiking interest rates (which is to say, to deliberately cool the economy) even as labor-force participation, wages, and inflation all remained aberrantly low, were among the most consequential policy choices of the past decade. By driving up the value of financial assets, quantitative easing exacerbated wealth inequality. By suppressing demand in a noninflationary environment, the Fed's rate hikes since 2015 have served to needlessly consign Americans to involuntary unemployment and reduce the leverage workers exercise over their employers. When one further considers the myriad other ways the Fed could have attempted to stimulate demand -- but chose not to -- the weight of its decisions grows even heavier. And yet the supposedly self-governing American people were almost unanimously oblivious to these decisions, which were treated as purely technical matters that required little to no democratic input.
Elite conservatives attuned to these developments did not hesitate to criticize the Fed for its socialistic violations of the free market's purity. But as Konczal and Mason explain, this critique is naive:
For many -- both inside and outside the Fed -- these kinds of large-scale asset purchases represent undesirable "distortions" of financial markets. But, as Bernanke (2017) notes, these criticisms are incoherent. The goal of all monetary policy is to "set financial conditions consistent with full employment and stable prices." So it is always going to produce a different pattern of asset prices and yields than it would have obtained otherwise.
And in any case, there is no such thing as "undistorted" values of interest rates, terms, and risk premia, etc.--these are always influenced by the policy choices of both the central bank and the elected government ... We should adopt a more expansive -- and thus more realistic and more politically productive--view of the central bank's role in directing credit and shaping outcomes in financial markets. The crisis and the response to it are not exceptional. They reflect the need for, and the reality of, conscious planning in financial markets.
When the Federal Reserve first began purchasing mortgage-backed securities in the aftermath of the crisis, it did so to facilitate interbank lending by removing "toxic assets" from the private sector's balance sheets. But by keeping the policy in place long after financial stability was restored, the central bank has effectively been encouraging banks to make more housing loans by inflating demand for mortgage-backed securities. Which may be a fine policy. But if our central bank is now in the business of subsidizing certain forms of credit creation -- to advance specific social goals (such as home ownership)--should we perhaps have a democratic debate about which social goals we would like to pursue? For example, if the demos decided that long-term human survival was a worthy objective, perhaps the Fed could "finance investments that address climate change, including the development of non-carbon energy sources and building retrofits to reduce energy use."
Judy Shelton, the top candidate for Donald Trump's next Fed nomination, understands the hazards of acknowledging that America already resembles a socialist country, at least in the nomenclature of a conservative polemicist. Like many other conservatives, Shelton recoils from the realities of modern monetary policy and (naively) advocates a return to a natural, prepolitical market economy. As she told the Financial Times:
"How can a dozen, slightly less than a dozen, people meeting eight times a year decide what the cost of capital should be versus some kind of organically, market-supply-determined rate? The Fed is not omniscient. They don't know what the right rate should be. How could anyone?" Ms. Shelton said.
"If the success of capitalism depends on someone being smart enough to know what the rate should be on everything ... we're doomed. We might as well resurrect Gosplan," she said, referring to the state committee that ran the Soviet Union's planned economy.
Sanders's implicit argument is quite similar: If our "capitalist" economy depends on constant discretionary interventions by policy-makers, we might as well determine those interventions through democratic debate -- and aim them at advancing the best interests of the 99 percent.
We are all "socialists" now. Some of us just happen to be democratic ones.
From a certain angle, Bernie Sanders's case for socialism is the same as Margaret Thatcher's for "free market" capitalism: "There is no alternative."
In a speech at George Washington University on Wednesday afternoon, the Vermont senator made several arguments for his political philosophy. Many of these aimed to dispel the misconception that the self-avowed socialist and his "political revolution" are trying to do anything "particularly radical." Rather, Sanders suggested that what he calls "democratic socialism" is akin to 21st-century New Deal liberalism. Seventy-five years ago, the United States had a president who insisted that "true individual freedom cannot exist without economic security and independence" and proposed the establishment of a "Second Bill of Rights" -- one that would guarantee all Americans health care, housing, and "a useful and remunerative job." In a sense, Sanders's modest ambition is to revive and update the conventional wisdom of the Democratic Establishment circa 1944.
This is a sound rebuttal to the claim that Sanders's vision is extreme or un-American. Though, for that reason, it does little to clarify why the senator insists on branding his ideology with a term that much of the American electorate still associates with Soviet communism.
Nevertheless, by coopting the right's expansive definition of "socialism"--which holds that any major government intervention in the economy (that conservatives don't like) is a fulfillment of Marx's vision--Sanders was able to recast the terms of America's economic debate.
"Overnight, Wall Street became big-government socialists and begged for the largest federal bailout in American history--over $1 trillion from the Treasury and even more from the Federal Reserve. But it's not just Wall Street that loves socialism--when it works for them. It is the norm across the entire corporate world."
"In 2008, after their greed, recklessness, and illegal behavior created the worst financial disaster since the Great Depression, with millions of Americans losing their jobs, their homes and their life savings, Wall Street's religious adherence to unfettered capitalism suddenly came to an end," Sanders said Wednesday. "Overnight, Wall Street became big-government socialists and begged for the largest federal bailout in American history -- over $1 trillion from the Treasury and even more from the Federal Reserve. But it's not just Wall Street that loves socialism--when it works for them. It is the norm across the entire corporate world."
One can pick many bones with Sanders's wording here (e.g., Wall Street was a beneficiary of "big government" largesse long before 2008). But his remarks call attention to an important fact: Americans already live in a country where unelected bureaucrats pick economic winners and losers, where public policy exerts a massive influence over the distribution of income, where some indolent Americans live off the hard labor of others, and where the state directs investment toward official, conscious ends. If these are the defining features of socialism, then the United States lost the Cold War before it began, and the real debate between left and right in the U.S. isn't over whether "big government" should intervene in markets, or even how much it should, but rather who should have a say over how it intervenes -- and whose interests such "socialism" should serve.
There may be more politically optimal ways of making this point (or at least, ones that do less violence to Marx's conception of socialism). But Sanders's broad argument is a vital one.
America's existing political economy is much easier to defend if one posits that the gross inequities it produces are ordained by an invisible hand. If some natural economic process dictates that wage growth must be tepid while corporations sit on cash, or that urban workers must be rent burdened while landlords live high off their labor, or that major financial institutions must be insulated from risk while underwater homeowners are left to drown, then one can plausibly argue that government action to alter such outcomes would be hubristic and self-defeating. Who is man to challenge the wisdom of the market gods? By contrast, if the electorate were to recognize that these outcomes are largely determined by public policy, then apologists for the existing order would have a much harder time rationalizing acquiescence.
Of course, many libertarians will readily concede that the state has its grubby fingers all over American capitalism. They disdain the bank bailouts, the corporate subsidies, and the massive government jobs program that is the military-industrial complex. Some may even object to the generous patent protections the state uses to shelter drug companies from the threat of competition. But even if it were politically possible to excise all these "distortions," our nation's economy would still bear the imprint of human hands.
After all, legal markets are themselves a kind of "big government" program. Absent a sovereign entity capable of enforcing contracts by commanding a monopoly on violence, mass commerce between strangers is nigh-impossible. Less abstractly, the introduction of private property across the North American continent required massive state violence and investment. Meanwhile, some human agency must decide roughly how much sovereign currency should be in circulation at any given time, and this decision will inevitably have large, economy-wide implications on how markets function and whose interests they best serve. Tight money will privilege those rich in cash by increasing the value of their holdings -- and thus, the interest rates they can charge for lending them. Loose money can privilege borrowers by triggering inflation that reduces the cost of their debts.
These points may seem banal. Sophisticated conservative thinkers are well aware that money doesn't grow on trees and markets do not make themselves. But efforts to naturalize the economy's basic ground rules -- by obscuring the state's inescapable role in setting them -- remain pervasive in America's political discourse.
The case for "re-politicizing" the foundations of our economy has rarely been stronger than it is today.
Which is unfortunate. The case for "re-politicizing" the foundations of our economy has rarely been stronger than it is today. As Sanders suggests, the 2008 crisis exposed the depths of the financial industry's dependence on the U.S. government -- and simultaneously the U.S. government's extraordinary capacity to shelter its favorite constituents from the slings and arrows of outrageous irresponsibility. Less transparently, the crisis and the long, lackluster recovery also exposed the profound, and inescapably political, powers wielded by the Federal Reserve.
As Mike Konczal and J. W. Mason wrote for the Roosevelt Institute in 2017:
During 2007 and 2008, it was the decisions of the Fed that determined which troubled financial institutions would survive, which would be absorbed by other institutions, and which, like Lehman Brothers, would be allowed to fail. During the summer of 2008, when the commercial-paper market that provides short-term financing to the nation's largest corporations had essentially ceased to function, the Fed stepped in to replace private lenders. By making loans directly to nonfinancial as well as financial businesses that had previously borrowed in the commercial-paper market, the Fed effectively replaced private banks as the source of short-term loans for corporate America.
During the slow recovery that followed, the Fed continued purchasing large volumes of mortgage-backed securities as well as longer-dated treasuries through the [quantitative easing] programs. The explicit logic of these policies was to induce private financial institutions to hold a different mix of assets than they would have chosen on their own-- ultimately in the hopes of financing activities that would eventually boost aggregate demand.
In other words, unelected bureaucrats picked the finance industry's winners and losers, created a public option for short-term corporate financing, and manipulated asset prices by creating artificial demand for various securities, all for the sake of promoting their conception of the public interest.
These moves, combined with the Fed's more mundane decision to start hiking interest rates (which is to say, to deliberately cool the economy) even as labor-force participation, wages, and inflation all remained aberrantly low, were among the most consequential policy choices of the past decade. By driving up the value of financial assets, quantitative easing exacerbated wealth inequality. By suppressing demand in a noninflationary environment, the Fed's rate hikes since 2015 have served to needlessly consign Americans to involuntary unemployment and reduce the leverage workers exercise over their employers. When one further considers the myriad other ways the Fed could have attempted to stimulate demand -- but chose not to -- the weight of its decisions grows even heavier. And yet the supposedly self-governing American people were almost unanimously oblivious to these decisions, which were treated as purely technical matters that required little to no democratic input.
Elite conservatives attuned to these developments did not hesitate to criticize the Fed for its socialistic violations of the free market's purity. But as Konczal and Mason explain, this critique is naive:
For many -- both inside and outside the Fed -- these kinds of large-scale asset purchases represent undesirable "distortions" of financial markets. But, as Bernanke (2017) notes, these criticisms are incoherent. The goal of all monetary policy is to "set financial conditions consistent with full employment and stable prices." So it is always going to produce a different pattern of asset prices and yields than it would have obtained otherwise.
And in any case, there is no such thing as "undistorted" values of interest rates, terms, and risk premia, etc.--these are always influenced by the policy choices of both the central bank and the elected government ... We should adopt a more expansive -- and thus more realistic and more politically productive--view of the central bank's role in directing credit and shaping outcomes in financial markets. The crisis and the response to it are not exceptional. They reflect the need for, and the reality of, conscious planning in financial markets.
When the Federal Reserve first began purchasing mortgage-backed securities in the aftermath of the crisis, it did so to facilitate interbank lending by removing "toxic assets" from the private sector's balance sheets. But by keeping the policy in place long after financial stability was restored, the central bank has effectively been encouraging banks to make more housing loans by inflating demand for mortgage-backed securities. Which may be a fine policy. But if our central bank is now in the business of subsidizing certain forms of credit creation -- to advance specific social goals (such as home ownership)--should we perhaps have a democratic debate about which social goals we would like to pursue? For example, if the demos decided that long-term human survival was a worthy objective, perhaps the Fed could "finance investments that address climate change, including the development of non-carbon energy sources and building retrofits to reduce energy use."
Judy Shelton, the top candidate for Donald Trump's next Fed nomination, understands the hazards of acknowledging that America already resembles a socialist country, at least in the nomenclature of a conservative polemicist. Like many other conservatives, Shelton recoils from the realities of modern monetary policy and (naively) advocates a return to a natural, prepolitical market economy. As she told the Financial Times:
"How can a dozen, slightly less than a dozen, people meeting eight times a year decide what the cost of capital should be versus some kind of organically, market-supply-determined rate? The Fed is not omniscient. They don't know what the right rate should be. How could anyone?" Ms. Shelton said.
"If the success of capitalism depends on someone being smart enough to know what the rate should be on everything ... we're doomed. We might as well resurrect Gosplan," she said, referring to the state committee that ran the Soviet Union's planned economy.
Sanders's implicit argument is quite similar: If our "capitalist" economy depends on constant discretionary interventions by policy-makers, we might as well determine those interventions through democratic debate -- and aim them at advancing the best interests of the 99 percent.
We are all "socialists" now. Some of us just happen to be democratic ones.