As excerpted from Michael Every of Rabobank
The hole in Jackson Hole is the total absence of political economy. You can fiddle with targets and acronyms all you want, but the real problems are structural and hence political. Even some Fed economists recognise this. As one example, consider this recent research paper: “Market Power, Inequality, and Financial Instability”. Its abstract argues:
“Over the last four decades, the US economy has experienced a few secular trends, each of which may be considered undesirable in some aspects: declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage, and associated financial instability. We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends. We derive macroprudential policy implications for financial stability.”
Congratulations to the two economists involved. In capital vs. labour power they have rediscovered what Marx first said around 150 years ago in one (wrong) form, and what Keynes and Kalecki showed to be true, including predicting negative interest rates as the final destination, around 80 years ago: it’s the political-economy, stupid. You either do something about that or you do nothing at all – apart from pushing up asset prices to make rich people richer in the erroneous belief that somehow this will then help poor people. Don’t expect any recognition of that at Jackson Hole today, of course, from the Fed or any other of the central bankers dialling in from home.
Instead, we get the irony-free Bloomberg headline “Stock Market Warns Workers That They’re the Problem for Business”, quoting a global macro strategist who argues “labour-light” firms beat big employers by 37 percentage points in terms of stock performance, and that 2020 is a “bear market for humans” as Covid-19 is “just accelerating social transformation, concentration of wealth in a few hands, massive inequalities, competition issues and all that.“ Perhaps if all companies fired all their workers we would get the best stock market ever? The data are unequivocal, right?
Again, sarcasm aside, we are back to political-economy.
Politicians have the power to deal with social transformation, concentration of wealth in a few hands, massive inequalities, competition issues and all that. Or they do if they aren’t listening to economists and central bankers who won’t address these issues because “economics is a science and not political”.
Again, there’s the real hole in Jackson Hole.