Thursday, March 28, 2013

Ashwin Parameshwaran — House Prices, The Wealth Effect And Crony Capitalism

As I illustrated in a previous post, “a significant proportion of the balance sheet of wealthy Americans is made up of real assets – real estate, stock and business holdings”. Therefore “what wealthy Americans, businesses and banks share is a common interest in supporting asset prices (real and nominal), a lack of interest in seeking full employment unless it is a prerequisite for supporting asset prices, and an aversion to any policies that can trigger wage inflation”. The fact that our dominant macroeconomic policy doctrine depends upon the ‘wealth effect’ simply reflects the fact that our economy is driven by wealthy special interests. 
The real question again is why there isn’t more mass opposition to such a blatantly regressive policy regime. In previous posts(1, 2), I have argued that crony capitalism achieves broad-based support by piggybacking upon broad-based programs aimed at the middle class. But they also achieve this support due to the absence of a safety net that breeds middle-class insecurity. This carrot-and-stick approach ensures middle-class support for the same stabilising policies that transfer wealth to the one percent.
Got that? Read the rest to see how it is done.

Macroeconomic Resilience — towards a more resilient macroeconomy
House Prices, The Wealth Effect And Crony Capitalism
Ashwin Parameshwaran

1 comment:

Tom Hickey said...

Yeah, they know that. They were watching the broadcasts of Iraq I and II.

This is posturing. They are trying to establish a strong position from which to negotiate. The first thing to establish when entering into negotiation with a much stronger party is that you are armed, dangerous and crazy. The idea being conveyed that it is cheaper to pay us off. Then the dealing begins.