Guest Post by David McWilliams
Is Ben Bernanke the father of Alexandria Ocasio-Cortez? Not in the literal sense, obviously, but in the philosophical and political sense.
As we mark the 10th anniversary of the bull market, it is worth considering whether the efforts of the US Federal Reserve, under Mr Bernanke’s leadership, to avoid 1930s-style debt deflation ended up spawning a new generation of socialists, such as the freshman Congresswoman Ms Ocasio-Cortez, in the home of global capitalism.
Mr Bernanke’s unorthodox “cash for trash” scheme, otherwise known as quantitative easing, drove up asset prices and bailed out baby boomers at the profound political cost of pricing out millennials from that most divisive of asset markets, property. This has left the former comfortable, but the latter with a fragile stake in the society they are supposed to build.
As we look towards the 2020 US presidential election, could Ms Ocasio-Cortez’s leftwing politics become the anthem of choice for America’s millennials?
But before we look forward, it is worth going back a bit. The 2008 crash itself didn’t destroy wealth, but rather revealed how much wealth had already been destroyed by poor decisions taken in the boom. This underscored the truism that the worst of investments are often taken in the best of times.
Mr Bernanke, a keen student of the 1930s, understood that a “balance sheet recession” must be combated by reflating assets. By exchanging old bad loans on the banks’ balance sheets with good new money, underpinned by negative interest rates, the Fed drove asset prices skywards. Higher valuations fixed balance sheets and ultimately coaxed more spending and investment. However, such “hyper-trickle-down” economics also meant that wealth inequality was not the unintended consequence, but the objective, of policy.
Soaring asset prices, particularly property prices, drive a wedge between those who depend on wages for their income and those who depend on rents and dividends. This wages versus rents-and-dividends game plays out generationally, because the young tend to be asset-poor and the old and the middle-aged tend to be asset-rich. Unorthodox monetary policy, therefore, penalises the young and subsidises the old.
When asset prices rise much faster than wages, the average person falls further behind. Their stake in society weakens. The faster this new asset-fuelled economy grows, the greater the gap between the insiders with a stake and outsiders without. This threatens a social contract based on the notion that the faster the economy grows, the better off everyone becomes.
What then? Well, politics shifts.
Notwithstanding Winston Churchill’s observation about a 20-year-old who isn’t a socialist not having a heart, and a 40-year-old who isn’t a capitalist having no head, polling indicates a significant shift in attitudes compared with prior generations.
According to the Pew Research Center, American millennials (defined as those born between 1981 and 1996) are the only generation in which a majority (57 per cent) hold “mostly/consistently liberal” political views, with a mere 12 per cent holding more conservative beliefs.
Fifty-eight per cent of millennials express a clear preference for big government. Seventy-nine per cent of millennials believe immigrants strengthen the US, compared to just 56 per cent of baby boomers. On foreign policy, millennials (77 per cent) are far more likely than boomers (52 per cent) to believe that peace is best ensured by good diplomacy rather than military strength. Sixty-seven per cent want the state to provide universal healthcare, and 57 per cent want higher public spending and the provision of more public services, compared with 43 per cent of baby boomers. Sixty-six per cent of millennials believe that the system unfairly favours powerful interests.
One battle ground for the new politics is the urban property market. While average hourly earnings have risen in the US by just 22 per cent over the past 9 years, property prices have surged across US metropolitan areas. Prices have risen by 34 per cent in Boston, 55 per cent in Houston, 67 per cent in Los Angeles and a whopping 96 per cent in San Francisco. The young are locked out.
Similar developments in the UK have produced comparable political generational divides. If only the votes of the under-25s were counted in the last UK general election, not a single Conservative would have won a seat.
Ten years ago, faced with the real prospect of another Great Depression, Mr Bernanke launched QE to avoid mass default. Implicitly, he was underwriting the wealth of his own generation, the baby boomers. Now the division of that wealth has become a key battleground for the next election with people such as Ms Ocasio-Cortez arguing that very high incomes should be taxed at 70 per cent.
For the purist, capitalism without default is a bit like Catholicism without hell. But we have confession for a reason. Everyone needs absolution. QE was capitalism’s confessional. But what if the day of reckoning was only postponed? What if a policy designed to protect the balance sheets of the wealthy has unleashed forces that may lead to the mass appropriation of those assets in the years ahead?
The writer is an economist, author and broadcaster
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Father? No. But his taking the easy way out greenlighted more idiocy like the new kids is Congress display, daily.
Unless you do no research at all. Then you find out socialism really doesn’t work. Move and live in a socialist country, see how it works. Holland would be my example. If an apartment and a job with healthcare means enough to you. For me, everyone seemed poor. Coming from me that is really bad! I got the distinct impression that everyone was “whipped”.
Considering how about half the country in the U.S. votes for one party. I think the idea of adopting socialism is very popular with many who want it different. A scary possibility. The cost of living, Insurance, housing? Drives this. I prefer the libertarian view and want as little gov. as possible. Eliminate unconstitutional agencies and downsize.
yahsure,
Your eyes seem to be open which is not the case with much of humanity on the ground level.
In the 12 category systematic s of JG Bennett socialism would fall under the Tetrad or level 4 of subsistence; a very boring place for one like you who; reading your comment’ would prefer to live in the 8th category of the Octad which is self directing with the ability to adjust behavior and can influence an occasion. This is called individuality. The goal in this 12 category system is to reach autocracy.
America started out as a country with people wanting to be self regulating and self directing. Now today we find the majority have lost this desire and degenerated down to the subsistence level, and there you have it, now only desiring socialism.
I agree with you. For me socialism sucks. It seems to be for people with no vision of self development. It is not in my DNA. But in the United States I see many even in the professional class that have no desire for personal development but would rather spend their time in play and games.
So the US is headed for that extension in space called the activity of socialism.
I’ve heard that particular extension in space is hot, smells like sulfur, and not even close to being half full yet, but they do have a lot of union memberships to give out.
Exactly http://harrogateagenda.org.uk/
There is another problem not mentioned about quantitative easing and it’s effect on the baby-boomers. Higher taxes on their homes. And in many cities the taxes are to high to pay after retirement. And the tax assessor has no heart about that.
If this situation is not corrected by the ones who created it I smell revolution coming.
If we were smart we would not be sending weapons and ammunition to sand swept hell holes but instead to Frenchy with the Yellow Vest. Let them do the dirty work of starting the revolution-after all, they do have some good experience over the years.
Yes, but the French are our allies – when they’re not trying to stab us in the ass from behind with a hatpin. The Saudis … well, don’t even get me started on them.
Was thinking along the lines of really big attention getters; guillotines? Let Frenchy take drastic action whereby the French Elites pay the price, whether at the polls or in the streets. Something to get things going. EU countries are resisting Brussels for various reasons. If we are not going to have a War or a Depression to save us then lets goad someone into lighting the fuse. Scare the crap out of all the Rulers for a few days.
As for the Saudis, maybe a herd of goats would work?
If we don’t see a depression first we probably will see the yellow vest movement over here which will cause the depression to happen sooner.
In Texas the appraised value is locked in when you turn 65, which limits your exposure to tax increases.
For the purist, capitalism without default is a bit like Catholicism without hell. But we have confession for a reason. Everyone needs absolution.”
Yes
“QE was capitalism’s confessional.”
No because confession doesn’t actually fuck someone else over. Capitalism’s confessional, in this case, fucked over the lower class.
This is just another left over from importing 50 million Third world bottom feeders who are to stupid to vote for anything else. They fucked their own countries now bring them here so can fuck up what’s left of America with socialism. They will vote for this shit no matter where they are. Should have learned the lesson when California was lost forever. Next will be Florida . Maybe we will get lucky and have a civil war .I’m convinced at this point it’s the only thing that will save some of America. Only problem is 75% the population will die once the power grid goes down.
Help me out: doesn’t the priest get something or another out of confession? If I put a quarter in his hat, and-even though I might feel better-am I not still out a quarter for his “blessings”?
And what if I feel bad the next day for the very reason I went to confession in the first place? (from a non-Catholic, so bear with me).
Use your head, saving the rotten Securities (junk Stocks and Bonds) by printing more money (QE) and buying them saved the rich men’s and retire’s asses and toys but it did not cause the LOWER class housing prices to go up; the writer is stirring Class Warfare the Old Fashioned Way. What caused Lower and Middle Class housing prices to jump was the expansion of Great Society HUD Communism (ever heard of Section 8?); and QE was used to save those Bankster’s and most of the Welfare Classes’ asses too. If government would stop subsidizing Welfare housing, prices would decrease (can you say CRASH children?).
Mr. McWilliams,
“Bailing out the baby boomers”? What does this mean? You think Ben Bernacke’s ultimate goal was to “Bail out the Baby Boomers”? This is such trash, irresponsible journalism and I cannot believe BP gave you a platform. Don’t worry, baby boomers will be working till they drop dead because of BB/FED policies.
Thanks so much for the insight but it is pretty clear bailing out bankster criminals and making the value of $1 worthless to the average person was the ultimate goal.