The Fed Maintains Income Inequality: It's Time to Shut Down the Central Bank and Stand Up for the Working Class
The Federal Reserve, also known as "the Fed," is the nation's central bank. It was established in 1913 to foster a reliable and effective financial system, and it has significantly influenced the direction of the economy. Although, history has shown that the Fed has failed at these tasks.
Advocates for the abolition of the Fed tend to be right-wing and usually on the libertarian spectrum. But the Fed affects issues that the left cares about as well. For example, some economists contend that the Fed and central banks generally worsen income inequality. The Cantillon Effect, which describes how newly produced money from central banks circulates through the economy and disproportionately benefits particular groups of individuals at the expense of others, is one explanation for this. Irish-French banker and economist Richard Cantillon is renowned for his contributions to the development of modern economics. The Cantillon effect was one of his most significant contributions.
To understand the Cantillon Effect, it is helpful to think about how the Fed creates new money. When the Fed wants to stimulate the economy, it can do so by buying assets, such as government bonds, from banks. These assets are bought with new money created by the Fed. This increases the banks' reserves and allows them to lend more money, which can lead to increased spending and economic growth. However, this new money does not flow evenly throughout the economy. Instead, it tends to flow first to those closest to the source of the new money, such as banks and their customers. These people may use the new money to invest in assets, such as stocks or real estate, which can drive up prices and benefit those who are able to buy in early.
The problem is that not everyone has equal access to the new money created by the Fed. Those who are wealthier and have more connections tend to be the first to benefit from the Cantillon Effect, while those who are poorer and less connected may not see the benefits until much later, if at all. This can lead to increased income inequality, as those who can take advantage of the new money see their wealth grow, while those who cannot do so may be left behind.
Alternative monetary systems, such as a gold standard or a free banking system, would be better for the economy and more equitable for all people. Proponents of these systems argue that they would provide a more stable and predictable monetary environment, which would benefit everyone by reducing the risk of inflation and financial crises.
If you care about income inequality, you may consider opposing the Fed and its monetary policies. If you care about the purchasing power and quality of life of workers, it’s time for you to join the “End the Fed” movement. By changing the way our monetary system operates, we can work towards a more equitable and prosperous economy for all.