Liminal Hack points to a post by Ashwin at Macroeconomic Resilience. Part of that post, as I said to Liminal, "is pretty much exactly in line with my thinking."
The "pretty much exactly" part is where Ashwin links to Steve Waldman's Monetary policy for the 21st century. Waldman's post is the object of my attention now and for the next few days.
I printed a copy of Waldman's post and numbered the paragraphs for reference. To avoid being confused by my attention to detail, all you need to know is that Waldman's 'paragraph one' is the one-liner --
Twentieth Century monetary policy can be understood very simply.
-- an opening which contrasts nicely with the title of his post. Paragraphs 2, 3, and 4 provide Waldman's simple understanding, one I'm not sure I can agree with:
"Prior to the 1980s, the marginal unit of CPI was purchased from wages..."
Then came the “Great Moderation”. The signal fact of the Great Moderation was that the marginal unit of CPI was purchased from asset-related wealth and consumer credit rather than from wages.
So Waldman sees a shift from "wages" to "consumer credit" arising with the Great Moderation in the mid-1980s. A shift in policy, he says. Prior to the 1980s, "central bankers had to reduce the supply of wages" to fight inflation. But under the Great Moderation, they could "inflate asset prices and credit availability" or alternatively "[restrain] asset price growth and credit access," rather than manipulating wages.
"Central bankers had to reduce the supply of wages." But in paragraph four, Waldman undermines his own analysis:
I want to emphasize, because it always comes up, that it was not central bankers primarily that suppressed wages during the period.
See, now that I agree with.
If Waldman's analysis is correct, we should be able to see the effects of central bank policy in the numbers.
#1: Suppression of Wages
There is indeed a perceptible decline in wages since around 1980. But this fact is not evidence that the decline was a result of central bank policy. More likely -- as Waldman himself observes -- "Globalization and declining union power did most of that work."
#2: Asset-related wealth
|Graph #2: "Assets"|
#3: Consumer Credit
|Graph #3: Consumer Credit|
#4: A Log Look at Consumer Credit
|Graph #4: Log Consumer Credit|
This graph also shows a significant increase in the growth of consumer credit before 1960. Since then, it shows a pretty consistent trend. If anything, there is a slight lessening of consumer credit growth since the 1990 recession. But there is no indication of slow consumer credit growth before the 1980s. And there is no hint of a speed-up related to the Great Moderation.
These four graphs do not show that the central bank suppressed wages. They do not show that anyone suppressed assets. And they do not show an acceleration of consumer credit that is associated with the Great Moderation.
On the other hand, the constant, continuous, critical increase in consumer credit-use does stand out. An increase began immediately after World War Two and continued without relief to the crisis of 2008. An increase that was itself part of the underlying cause of that crisis. An increase of credit-use. An increase of debt.
Changes in the '80s? Of course there were changes in the '80s, because there were problems in the '70s. Remember stagflation? Remember double-digit inflation? Those problems were caused by increasing credit-use. And by the rising factor-cost of money, which was a result of the excessive accumulation of debt (yes, already in the 1970s) which was itself caused by the constant, continuous, critical increase in consumer credit, and by other uses of credit.
There were changes in the '80s, like special tax treatment for capital gains. A shift away from a focus on profit, toward the focus on wealth accumulation. Changes that can be seen in Graph #2. Changes put in place in the 1980s, in response to prior problems.
Did the Fed change its behavior? Of course. It did what it had to do, to make policy effective. But it did not change its support for credit-use and the growth of debt. Rather, it continued to appease the need for credit-growth -- a need created and enhanced by Congress.