Good AD Policy Does Not Hurt the Poor
It’s hard not to feel a little sorry for the Bank of England today. First, a sustained attack from the rabid right-wingers, with Ros Altmann’s shrill attacks and the Daily Telegraph pandering to the
liquidationists “virtuous” savers demanding higher interest rates and screw the consequences.
The Bank then publish a defence of the distributional effect of QE, only to suffer a broadside from the left, with the Indy splashing “Bank’s stimulus plan ‘has lined pockets of the rich‘”, and the Guardian run with “Britain’s richest 5% gained most from quantitative easing“.
Sometimes you just can’t win!
I think Chris Dillow has this about right – don’t blame the Bank for inequality, but I’d go a bit further.
If QE has effects in the real economy it must be through its effect on actual spending on goods and services, on the level of nominal demand. If rising stock prices are not matched by an actual rise in corporate earnings, it would be a false wealth effect, not a real one.
Therefore, the mechanism by which you boost demand is surely irrelevant to the particular effects on assets. If you think you can raise demand with fiscal policy, that must have roughly the same effect in boosting asset values, as faster spending growth means faster growth in corporate earnings.
In the end isn’t this all a distraction? Bad AD policy hurts everybody, but surely has most severe outcomes for those at the vulnerable end of the labour market. And if QE is a necessary part of better AD policy, it seems perverse not to embrace it merely because that policy also makes some rich people richer.