CP - Monetary Policy CPs - Georgetown 2023 Starter

CP---Monetary Policy---GDS 2023
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Monetary Policy CP---
Text: The United States Federal Reserve System should take inequality specifically into account when conducting monetary policy.
Counterplan solves inequality while stabilizing growth
Hansen et al. 20 – economist in the Western Hemisphere Department at the International Monetary Fund
Niels-Jakob Hansen, Alessandro Lin, and Rui C. Mano, “Monetary Policy for all? Inequality and the Conduct of Monetary Policy,” IMFBlog, 9-30-20, https://www.imf.org/en/Blogs/Articles/2020/09/30/monetary-policy-for-all-inequality-and-the-conduct-of-monetary-policy
In new IMF staff research, we find a case for central bankers to take inequality specifically into account when conducting monetary policy.
A new view on monetary policy
Even though inequality remains outside central banks’ mandates, major central bankers are increasingly discussing distributional issues. At the same time, recent advances in economic theory shed new light on the interplay of monetary policy and inequality.
It is now accepted within academia and major central banks that wealth and income inequality affect the effectiveness of monetary policy. This is because the poor, who tend to be more liquidity constrained than the rich, increase their consumption more as their incomes rise in response to an interest rate cut. The same rate cut thus stimulates aggregate consumption more in an economy with a larger proportion of the poor. Relatedly, there is evidence supporting that monetary policy itself can affect inequality.
…we find a case for central bankers to take inequality specifically into account when conducting monetary policy.
Our research asks whether inequality affects the way monetary policy should be conducted in a stylized economy where business cycles are driven by innovations in technology. In this setting, a rich person—call her R—owns all the capital. R’s income is thus composed of after-tax dividends and wages. In contrast, a poor person—call her P—receives only wages and a transfer from the government financed by the dividend tax. In the model, profits and capital income rise in response to positive productivity shocks, thereby exacerbating inequality. Moreover, wages are tech-biased: when productivity rises, R’s share of total wage income goes up, while P’s declines. These mechanisms are consistent with U.S. micro- and macro-economic data and match the empirical effects of technology shocks on consumption inequality.
We study implications for monetary policy in two settings. In the first, the central bank chooses the best possible path of interest rates with full information and caring equally about all individuals. This setting is called “optimal policy.” In the second setting, the central bank sets monetary policy according to a so-called Taylor rule, which prescribes a given interest rate based on whether inflation and output deviate from desired levels. This second setting is useful because it is closer to what central banks do in practice. In our study, the relevant concept of inequality is the difference in consumption between rich and poor.
Implications for monetary policy
In the first setting, we find that a central bank should place some weight on observed consumption inequality. That means the central bank will use monetary policy, by setting lower interest rates that stimulate growth and wages and thereby reducing consumption inequality, while tolerating inflation moving above its target. However, we find that this weight is generally small and thus output and inflation are not that different from those that would prevail if the central bank ignored inequality. Interestingly, a central bank pursuing such “optimal policy” cares progressively less about inflation and more about growth the higher the initial level of inequality. This is because when initial inequality is high the central bank will try harder to adjust interest rates to stabilize wages and protect the consumption of the poor. Thus, stabilizing wages, and hence inequality, coincides with stabilizing growth.
In the second setting, we find that a central bank should pursue an augmented “Taylor rule” targeting also consumption inequality. That means following a positive productivity shock, interest rates should be set lower than the level implied by a standard Taylor rule that targets output and inflation alone. A policy of lower interest rates leads to higher wages which benefits the poor. Beyond lowering inequality, such a policy is also beneficial more generally because it improves inflation and growth outcomes by avoiding excessive tightening of the interest rate in response to a positive productivity shock.
These results suggest that welfare could be improved if central banks take inequality into account when conducting monetary policy, particularly if following typical interest rate rules. Our results of course are model specific and can be complemented by considering additional features, for example, by including differentiated types of labor and hence differentiated wages, or a richer set of available assets. The results bolster the case for more theoretical and empirical work on the issue.
Solvency
2NC---Solves Inequality
Nobel laureates agree the counterplan’s key
Stiglitz 14 – professor at Columbia University, winner of the Nobel Prize in Economics, and a former chief economist of the World Bank
Joseph E. Stiglitz, “Fed Can Influence Banks to Spread Opportunity,” The New York Times, 10-28-14, https://www.nytimes.com/roomfordebate/2014/10/27/what-could-the-fed-do-to-address-inequality/fed-can-influence-or-banks-to-spread-opportunity
Central banks play a key role in shaping our economy – their policies affect growth, employment, inflation, financial stability and yes, inequality. So what if G.D.P. goes up by 2.5 percent and inflation is controlled? If the majority of citizens are worse off, then our economy is not performing well. The American economy has been failing: Median income today, adjusted for inflation, is lower than it was a quarter century ago. This should be a major concern of the Federal Reserve, and it is great that at last it has a chairwoman who recognizes this. There is much that the Fed can do. In the past, the excessive focus on inflation meant that insufficient attention was paid to its other objectives – growth, employment and financial stability.
When central banks, in their obsession with inflation, ratchet up the interest rate every time that wages increase, especially when wages increase faster than productivity, they ensure that workers get a declining share of G.D.P., but workers never recover the losses they suffer in those periods when the economy is weak. It's part of the explanation for the yawning gap over the past 40 years between productivity growth and wage growth. Today, so long as inflation remains mild, the Fed should hold back on interest rate increases until wage growth makes up for the lost time of the Great Recession.
The Fed affects inequality by what it does and what it does not do. Its failure to do what it should have done in maintaining financial stability is a case in point: The crisis has contributed greatly to our country's inequality. Yellen emphasized the importance of opportunity and noted that access to finance is an important aspect of entrepreneurial opportunity. But the flow of money to small- and medium-sized enterprises is still weak. Restricting the banks from other activities (e.g. originating derivatives and credit default swaps) that have often proved more lucrative but also volatile than old-fashioned banking, would encourage them to devote more of their resources to lending that might help create new businesses and jobs.
Another set of policies being tried by a few central banks essentially either provides preferential access to the discount window for small and medium enterprise loans or imposes S.M.E. lending requirements (like C.R.A. requirements) for banks wishing access to the Fed window.
Finally, the Fed is the most important regulator of our financial system. It could and should do more to prevent abusive credit card practices, usurious interest rates and predatory and discriminatory lending. These practices are especially costly to the poor. The monopolistic fees charged for the use of credit and debit cards are like a tax that enriches the coffers of the financial system rather than going for public purpose.
This reality needs to be taken on board by the Fed. Yellen should be congratulated for asking what can be done to ensure that our economy and our financial system once again serves our society.
Aggressive rate hikes mean low-income families can’t buy houses which decimates wealth-building opportunities
Daniel 23 – reporter, citing Daniel Ringo, Board of Governors of the Federal Reserve System
Will Daniel, “A Fed economist says the Fed is making inequality worse with its interest rate hikes,” Fortune, 1-27-23, https://fortune.com/2023/01/27/fed-interest-rate-hike-inequality-worse-fed-economist/
The Federal Reserve may be exacerbating inequality in its attempts to quash inflation with aggressive interest rate hikes, according to a new working paper from Fed economist Daniel Ringo. In an attempt to cool down inflation, the central bank raised rates seven times last year. And those hikes have made homeownership rates in lower-income communities drop.
Using mortgage application data, Ringo found that for a one-percentage-point rise in mortgage rates owing to Fed policy, home purchase loans to low- and moderate-income households drop by 7.5% almost “immediately.”
“Tighter policy…appears to prevent many lower-income families from buying homes,” he explained, adding that first-time homeownership is also “persistently lower” for one year following Fed rate hikes.
Over 250,000 low- and moderate-income households would be prevented from buying a home in the year following rate hikes, if Ringo’s estimates are correct.
“This finding of considerable persistence suggests that a one-time monetary policy decision has the potential to meaningfully affect the income composition of the stock of homeowners…for a protracted period,” he said.
The economist went on to emphasize that home price appreciation, along with the “forced-savings nature” of mortgage payments—homeowners’ consistent, repeated investment into an appreciating asset, effectively saving—can be “a powerful wealth-building tool” that many families miss out on when the Fed raises rates.
“Monetary policy affects not only the value of assets, but who is able to purchase those assets,” he wrote, noting that lower interest rates can allow lower-income households “to get their foot in the door of homeownership.”
Property ownership is the key internal link to reversing dispossession
Viforj et al 22 – Australian Research Council (ARC) Future Fellow and John Curtin Distinguished Professor at the School of Accounting, Economics and Finance at Curtin University.
Susan J. Smith, William A. V. Clark, Rachel Ong ViforJ, Gavin A. Wood, William Lisowski, and N. T. Khuong Truong, January 27 2022, “Housing and economic inequality in the long run: The retreat of owner occupation,” Economy and Society, https://www.tandfonline.com/doi/full/10.1080/03085147.2021.2003086
Capital is back: accumulating not on the platforms of agricultural land or industrial plant, but rather into residential property – housing and the territory it stands on. The difference between previous regimes of inequality and the one operating today is that, situated between the ongoing concentration of wealth and incomes, and any tendency to peak inequality, is the still-dispersed ownership of the world’s largest capital asset – housing. From the ashes of the inegalitarian proprietarian ownership regimes of the nineteenth century (Piketty, Citation2020), owner-occupation emerged to form the one thing, above all, that has – so far – prevented the repolarization of wealth reclaiming its early twentieth-century zenith.
Owner-occupation thus features centrally in the story of economic inequality. It was a counter-balance through the (re)turn to inequality in the late twentieth century, expanding across the class structure as earned incomes stalled. House price appreciation took off as welfare states rolled back, and cash strapped home-occupiers accumulated debts against property in order to make ends meet. All this, together with the ideological wrapper encasing owner-occupation, distracted attention from the disparities in income and wealth that the GFC exposed. What we have shown in this paper, however, is that across the twenty-first century, while historically unprecedented levels of wealth continued to accumulate into housing, those assets began to change hands.
The data presented are indicative; the changes they signal are recent and modest, albeit unevenly spread. Nevertheless, from representative cross-sectional and longitudinal national panel surveys spanning nearly two decades across three jurisdictions, three common facts stand out. First, owner-occupation is shrinking relative to other housing tenures, so that, for the first time in 50 years, a growing proportion of households – especially the young, but also those in older age – hold no property wealth at all. Second, notwithstanding the credit constraints that followed the GFC, mortgage debt has unfolded across the age range. This may provide leverage for the asset-rich, but it remains – in the shape of equity borrowing – a key source of funds for younger, poorer households with stagnant labour incomes. Finally, the distribution of any remaining unmortgaged home equity is highly skewed, and more uneven now than it was in 2001. So change is in the air adding a new chapter to the story of economic inequality in the long run.
That chapter – ‘post-homeownership’, or more properly post-owner-occupation – could from a housing services perspective offer, in theory at least, a welcome alternative to the financialised excesses of the housing status quo. In practice, however, and in terms of political economy, the scene seems set to amplify the present regime of inequality, as the de facto ‘other’ to owner-occupation – private renting – takes on the mantle of capital accumulation. Renting has always ‘oiled the wheels’ of tenure-divided housing systems and has of late been incentivized to that end. Initially, these measures favoured amateur landlords chasing capital gains, thereby enlarging a housing wealth divide flagged earlier (Ronald and Kadi, Citation2018). As the twenty-first century unfolds, however, with private land and property owners poised to annex the lion’s share of the economy, individual landlords, like their owner-occupying predecessors, are being edged out by a new generation of institutional investors focussed on rental income as well as capital gain. These big-ticket organizations are shifting the focus of financialization from debts to assets (Wijburg et al., Citation2018) while advancing a programme of housing-led rentierization (Ryan-Collins & Murray, Citation2020). This gained momentum from a fleeting post-GFC property slump, and thereafter began, albeit unevenly, to exploit what amounts to a rent-gap embedded in capital-gains-focussed ownership-centred housing systems (Christophers, Citation2021a).
Short-term speculators (private equity and hedge funds, raising capital from pension funds and insurance companies) came first, followed by a wave of real estate investment trusts and listed real estate companies investing ‘patient capital’ for the longer run. These large corporate landlords are steadily buying up extensive tracts of residential real estate including bulk-buy-to-let of multi-family dwellings (Fields, Citation2017), targeted acquisition of single-family homes (Fields, Citation2018) and purchase of land for ‘build-to-rent’ (Brill & Durant, Citation2021; Nethercote, Citation2020). Costs are managed and profits boosted by a growing array of post-GFC technological innovations (‘PropTech’) aiding search, appraisal and acquisition, as well as tenant vetting, property management and rent collection (Fields, Citation2019). Encouraged by governments, to a mixed reception from tenants, these increasingly-global corporate landlords are targeting the heartlands of owner-occupation, expanding from the United States and Canada, into Europe, the United Kingdom and the rest of the English-speaking world.
Unsurprisingly, it is a moot point whether, by taking residential property into their long-term investment portfolios, these professional corporates can do better than their ‘amateur’ counterparts in the delivery of housing services. They are unforgiving in the setting and extraction of rents, and the research literature is pessimistic (Walks & Soederberg, Citation2021). Even in the world of social investing, new styles of dispossession, some linked to the rise of state rentierism, have emerged (Beswick et al., Citation2016; Lees & White, Citation2020; Penny, Citation2021; Rosenman, Citation2019).
Whatever else this latest financial turn represents, it exposes a cluster of large, consolidating ‘permanent universal owners’ in the world of property, analogous to those emerging in finance, where the mass migration of money into index funds, overseen by just three large asset managers, is eclipsing shareholder capitalism (Fichtner & Heemskerk, Citation2020). Any monopolistic tendency this represents may not yet have cascaded through the big three residential property-owning democracies profiled in this paper, but there is a drift towards the rentierization of everything that suggests it might (Christophers, Citation2020). In this vision for ‘post-homeownership’, the equity ebbing out of households’ wealth portfolios is reshaping the landscape of inequality in ways reminiscent of Piketty’s (Citation2020) nineteenth century ‘proprietory ownership’ societies, wherein most households rented their homes and owned (nearly) nothing else.
These surely are the expropriating forces that Piketty had in mind when he talked about ‘the conditions under which the concentration of property might return to pre-1914 levels’. The question that remains is how much momentum they will gather. The constraint is owner-occupation: still the majority tenure in a wide range of jurisdictions; still blocking any neoliberal ‘end game’ in the annexation of land and property. So, for all the sector might have failed to deliver as a housing service (as noted earlier), as ‘the people's’ asset it may yet have a role in anchoring the future. Here, there is much to consider, including the potential highlighted earlier for housing movements to turn the tide (see also Humphrey, Citation2020; Tattersall & Iveson, Citation2021). Whatever the catalyst, interrupting the ongoing concentration of residential property wealth will require some ‘third way’ between the financialized owner-occupied past and a progressively rentierized residential future. To that end, we conclude with a reflection on two possible points of departure – two nudges against inequality in the long run. One of them, taxation, is a practical act that offers the best chance of ameliorating the accumulation and concentration of residential capital; the other is about enlarging the housing imaginary sufficiently to mobilize what Ireland and Meng (Citation2017) describe as ‘an untapped range of institutional possibility’ to reformat the future.
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Property ownership is the key explanatory factor for differences in income.
Kaiser 21 – PhD candidate at HEC Lausanne.
Franziska Kaiser, August 25 2021, “The impact of homeownership on wealth inequality,” Paper prepared for the 36th IARIW Virtual General Conference, https://iariw.org/wp-content/uploads/2021/07/Kaiser_paper.pdf
My results are in line with the findings of former studies analyzing the effect of homeownership on wealth inequality across Europe. Mathä et al. (2014) stre

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