Money is already socially fair

Technically, the monetary policy of central banks can deliberately change the levels of inequality in societies. But the idea of ​​committing the central bank to tackle inequality is, as Rutgers University economist Roberto Shan, who has researched the issue, a dangerous one—there is no way to reconcile this activity with a standard central bank mandate. Supplementing it with this function objectively should radically reduce public confidence in the regulator and the effectiveness of its work.

Article by Roberto Shan “Can a central bank aim to fight inequality?” in the November issue of the NBER bulletin, it is formally very opportunistic: the spread of leftist radical ideas while blurring the significance of political economic justifications for social demands in leftist communities has recently led activists to the question: why all kinds of inequality (income, property, gender, etc.) cannot be fought monetary regulator, central bank? On the one hand, economists are already quite confident about the possibility of predicting the impact of a particular monetary policy on inequality in a particular society. On the other hand, as the author notes, in 2021, US Senator Elizabeth Warren has already begun drafting amendments to the legislation on the US Federal Reserve to supplement its mandate with the obligation to “prevent or eliminate racial disparities in employment, wages, wealth, and credit availability.” The discussion by theorists of the question whether the Central Bank can engage in a direct fight against poverty, apparently, only slightly anticipates the real political agenda in the US and the EU.

The author studies even a somewhat broader question – to what extent, within the framework of our current ideas about the structure of a typical financial system and economy, can the central bank act in favor of the interests not of “the whole of society as a whole”, but by engaging in positive or negative discrimination of certain social groups – and how this will correlate with the efficiency of fulfilling its main tasks, including (if we are talking only about the central bank as an issuing bank) – maintaining price stability at an optimal level of unemployment. The conclusions that Shan comes to are rather unusual: the idea itself can be implemented, and most effectively, by weakening control over the “emissions” of inflation or redistributing the “inflation tax” to certain groups of owners. Moreover, the nominal wealth (wealth) in the group can be a permanent base for the inflation tax “generated” (managed) by the Central Bank as such.

This is where the “positive” conclusions end – and the problems begin. Thus, according to Shan, the conservatism of central banks, noted in the theoretical works of Kenneth Rogoff in the 1980s, is a necessary condition for the efficiency, including the hypothetical struggle of the Central Bank against inequality. If the central bank acts in this matter more effectively than the public expects, then for a number of reasons public confidence in such a central bank and its monetary policy will quickly fall. Finally, the author generally confirms the intuitive assumption that a “socially progressive Central Bank” will be less effective in its main tasks – and even in the case when the central bank is engaged in such a struggle outside of economic uncertainty, it “turns on” or “turns off” goals for inequality – the result in the main area of ​​activity of the monetary regulator will be negative. And finally, such a central bank will not be able to work effectively with non-issuing regulatory functions, if any.

Note that the inequality in Shan’s work does not have to be low: the conclusions work both ways. That is, by increasing inequality well and quickly (in favor of the rich, whites, men, the influential majority), such a Central Bank would not be able to cope with unemployment and inflation in the way that current regulators are able to act.

Dmitry Butrin