Engine of Inequality

Chapter 7How to Make Monetary Policy Make Us More Equal

Mr. Hoover was an engineer. He knew that water trickles down…. But he didn't know that money trickles up.

– Will Rogers*

American capitalism has entered a new and dangerous phase, one in which the Federal Reserve has assumed the role as a financial backstop and lender of last resort to every major corporation, along with the banks and investors that provide them with capital.… As a result, Wall Street and the corporate sector have now achieved that state of financial nirvana in which private investors earn outsize rewards during good times, while in bad, outsize risks are socialized through government rescues.

– Steven Pearlstein†

Although Will Rogers was talking about the early 1930s, he is right on point for our own times. The cowboy-sage of the Great Depression highlighted that Herbert Hoover, the US president in 1929, believed that protecting Wall Street would save Main Street. In 2020, the Congress, the Trump administration, and the Fed again believed that trickle-down policies would do the same. Trying hard to prove the point, the Fed even opened something it called the Main Street Facility, an ironic tribute to Herbert Hoover given that it was a giant open window backing loans over $250,000 to companies with as much as five billion in annual revenue – in short, not your local barbershop.¹ With this and its other COVID-crisis facilities, the Fed protected big borrowers, often from themselves, even as households ...