Fiscal and Monetary Policy vs. The Well Being Economy

My wife and I recently wrapped up reading Alan S. Blinder’s “A Monetary and Fiscal History of The United States, 1961-2021 with a couple friends. While I am not disappointed in the book itself, I am disappointed that the impacts of the ever changing monetary and fiscal policies covered throughout that period were limited to GDP, unemployment and production, political perception, and attitudes toward Keynesianism. Though these each hold significance, what I was hoping to see more of is how each policy change impacted the US Economy more holistically – meaning how it impacted the size and strength of the Middle Class, the growth of local economies and small businesses, household well-being, innovation, etc.   I was left to draw my own conclusions on that, albeit not arbitrarily.

The graphic used in the cover of this post includes three separate images, one that shows the rise and fall of the middle class (as seen through the concentration of wealth) compared between 1917 and 2007, one that shows the top marginal tax rates for roughly the same period, and another that is a hack job of a graphic that tries to capture my summary of influences at play in US economics operating simultaneously in the open and (for lack of a better metaphor) behind the scenes or under the surface of the economy and our decisions about how to interact with it.  Here are some conclusions that I am drawing (or as it turns out in some cases, drawing again):

Whether or not we’ve used monetary or fiscal policy has been of little relevance to our economy compared to how and why we have used them.

Both monetary and fiscal policy can put reigns on or put a fire to the economy in the ways we need it to; however, monetary policy tends to be based on data while fiscal policy tends to be driven by a number of different factors illustrated in my graphic and described below.

This previous point is an unfortunate reality because fiscal policy alone has much of an ability to shape our economy in ways that benefit the people within it in ways that we choose to, while monetary policy leaves that aspect most squarely in the hands of Social Darwinism.  Unfortunately, the influencing factors on how fiscal policy has been used has often hurt us rather than served to the benefit of most American people, and much less to the benefit of those who have been historically marginalized on the road to greater financial stability and generational well-being. 

America’s Middle Class was the largest and strongest from the years immediately following World War II to the early 80’s during a period of time when an important aspect of fiscal policy (a progressive tax structure) shaped our economy in just that way.   Due to the lagging nature of fiscal policy impact, the Presidents in place during the implementation of that policy are credited as Rosevelt (FDR), Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter.  Each took different approaches, but all maintained top marginal tax rates well above 50% and at levels which would be demonized with any number of politically motivated monikers today.

Though how money flows throughout the world has changed dramatically in the past 4 decades, it has had little impact on the health of our economy. What has impacted our economy’s holistic well-being is politics and its drivers (perception, identity, fear, ideology, education, and the media/sources of information).  These changes have brought with them those that determine what we use as the baseline for truth, how we allow for the definitions of terms and facts to be arbitrarily changed by politicians and parties, the power that we give to the most wealthy among us and to corporations, and (perhaps most importantly) polarization and our ability to hear from and understand one another or even care to do so.  What has not changed is the way that money (math) works (Modern Monetary Theory is still regulated to academic corners, unless you want to misappropriately apply it as the reasoning that politicians use the deficit in campaigns while ignoring it in practice).  

There is a lot more to discuss here, but I’ll jump to my conclusion.  Don’t be fooled by rhetorical claims that there is something wrong with “our economy.”  There’s nothing wrong with “our economy” – it’s simply operating the way our fiscal policies are directing it to operate.  The work is being done.  The innovators are innovating.  The money is being made. Etc. Etc. Etc.   What’s not happening is the implementation of fiscal policies that ensure that all of that benefit that we Americans are birthing into the world is shared by the American’s making it possible.   Unfortunately, instead of learning from history and focusing on fiscal policy or choosing to support policies and policy makers that would implement the practices that have been proven to grow and strengthen the middle class, provide accessible pathways out of generational poverty, and create better well being in a better America (without, by the way, stifling economic growth or hurting anyone in the process), too many of us remain too caught up in all the things that lend to really bad decision making.  It’s time to make different choices.