One may smile, and smile, and be a villain.
We live in a time of Docilians* – those who don’t think for themselves, but simply accept whatever their own personal Messiah reveals to them as the Truth. They are docile creatures until their revealed faith is threatened. Then with spit and spite, they attack the non-believer, threatening job, family and life.
Cancel culture and the Big Steal, Antifa and the Proud Boys, are all symptoms of this same modern sickness. Our mass media, our social media echo chambers and too many of our politicians are conditioning their Docilians to hate the non-believers. Like vultures whose claws tear at the social fabric of our communities, they prevent us from coming together to solve common problems. These visible villains thus impair our communities’ resilience.
And yet, I do not fear these visible villains; I believe that ultimately they will destroy themselves – revolutions do, indeed, eat their children, and even Docilians eventually tire of the cacophony. The dwindling audiences for Hollywood’s vitriol and the waning ratings of the mass media are mute testimony that the masses are voting with their seats.
But I do fear the masked villains – those whose seeming affability deflects attention from their actions; actions that sometimes do even more to impair our resilience. The central banks are a prime example.
As I’ve tried to make clear in previous posts, resilience relies on dispatchable capital. When the poor, in particular, are hammered by disaster they have little wealth or discretionary income to use to bounce back. One way – one of the best ways – to increase our communities’ resilience is to increase the poor’s ability to help themselves. That means finding ways for them to build a rainy day fund, to increase their net worth. Jobs are a part of that, to be sure, but not just “jobs” – the gig economy provides plenty of jobs but damn little opportunity to save significantly.
Across the developed world, central banks are pursuing policies that effectively penalize the poorest among us, while inflating the assets of the richest. Even while the central bankers – the Fed, the ECB, the BoJ, the BoE – sanctimoniously break their arms patting themselves on the back over all of the good they
want us to think they’re doing.
Their “good works” rest upon two policy pillars: low interest rates and inflation. Ever since the dot-com bubble of Y2K, interest rates have been trending downward until they are now effectively negative, i.e., every year, our savings accounts are worth less and less. Since the Great Recession, central banks have also been trying to drive up inflation. Hazlitt and others call this a hidden tax that also reduces the purchasing power of our savings. Together these feed a “tangle of pathologies” that prevent the poor from climbing out of poverty.
The wealth the poor are able to accumulate is in their savings and their pensions (if any) and their house. Compare this to the more affluent who have more diversified (less risky) portfolios, including stocks and mutual funds. As noted above, low interest rates reduce the value of savings over time. Low interest rates also reduce the poor’s net worth by reducing the return expected from savings, and the imputed value of pension plans. As the chart shows, the net worth of those without a high school diploma has dropped by a trillion dollars over the last five years, primarily due to the reduction in value of their pensions. In fact, the net worth of the least educated, in constant dollars, is somewhat less than it was 25 years ago!
Low interest rates also impact jobs. Twenty-five years ago, three jobs were being created for every two that were lost because of business closures. Now, we are close to 1-to-1 in the US, and less than that in the EU and Japan. Low interest rates stifle lending to small startups because the reward to a bank for making the loan is so low compared to the loam’s risk. But low interest rates also have a more pernicious impact on jobs: they enable the Amazons of the world to knock out the “Little Guys” unfairly. So you have fewer small businesses meaning fewer jobs, especially for those with less education.
The central banks’ “chasing inflation” is highly regressive. Since the net worth of the poor is so heavily weighted toward savings, inflation means that their savings become less valuable year after year. But inflation also packs a double whammy for the poor – the cost of the things they buy (food, rent and energy) increases faster than the middle class “basket of goods” that make up the official inflation rate. Charles Gave has dubbed the price of food, rent and energy (equally weighted) the Walmart Index. In the US, the nominal rate of inflation is about half the Walmart Index’s 3.3%. Thus, inflation eats up the poor’s earnings making it harder to save.
In preparing this note, I looked at race, educational attainment and income levels. As a group, African Americans are much better off than they were ten years ago – their net worth has doubled. The lowest quintile of wage earners has seen a similar growth in their net worth, mostly over the last five years. It is the less educated poor – no matter their race – who have been hurt the worst by the central bank’s villainy.
If we want our communities to be more resilient, we have to recognize that our central banks’ actions – no matter how well-intentioned – harm those who can least afford it. Further, we have to recognize that education is a key determinant of who is harmed the most. The central banks’ actions are working against us; their smiling faces masking darker deeds. Thus, fewer jobs and increased disparity between rich and poor, based on their education. As I’ve said before, education and opportunity are the keys to lifting the poor out of poverty. In a future post, I will revisit education as a way to mitigate the impacts of these masked villains’ actions.
* Thanks to the Risk-Monger for this telling term.