<blockquote>
<p>Could the Feds objectives be adjusted to decrease or at least not increase wealth inequality?</p>
</blockquote>
<p>Trivially, answer is yes. Congress could just give Fed a mandate for lowering inequality, the same way as congress could pass a law giving Fed mandate to bring world peace or solve world hunger or conduct space exploration. US is sovereign state and Fed is government institution and technically speaking US government can assign Fed whatever mandate it in its infinite wisdom chooses to.</p>
<blockquote>
<p>Would changing the objectives of the Feds to: low unemployment, stable prices, and moderate long-term interest rates decrease or at least not increase wealth inequality?</p>
</blockquote>
<p>No.  Wealth inequality does not just depend on interest rates. We actually do not yet fully understand what is driving wealth inequality, since data on wealth (as opposed to incomes) is harder to come by and only very recently we became able to reasonably measure it (see <a href="https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080218-025852" rel="nofollow noreferrer">Zucman 2019</a>), but there is virtually no doubt that it depends on more than just interest rates.</p>
<p>For example, economic growth tends to reduce wealth inequality between countries but does increase economic inequality within countries (<a href="https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080218-025852" rel="nofollow noreferrer">Zucman 2019</a>). Next wealth inequality depends on design of tax system, capital incomes (<a href="https://onlinelibrary.wiley.com/doi/full/10.1111/coep.12210?casa_token=UO-LiEhR35sAAAAA%3ApM4NMRNYi6OTBuFetaIG9u964AZ5qsWKnfXBj8CgWZ5SW6falmGuA3NB6nA98RNcIZdR2xPMRQjU-kE" rel="nofollow noreferrer">Saez 2016</a>) and other factors as well. So just keeping moderate interest rates would not reduce inequality or prevent its increase in itself.</p>
<p>Fed could probably do something about wealth inequality, if it would have mandate, but it would not be as simple as keeping interest rates 'moderate'.  However, this would likely often conflict with its other two mandates and thus lead to worse economic performance, and hence the lower inequality might come at a cost of worse economic outcomes.</p>
<p>To illustrate this point, there is some evidence showing loose monetary policy during Great Recession increased relative wealth inequality in the US (D<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2744862" rel="nofollow noreferrer">omanski, Scatigna, &amp; Zabai, 2016</a>). However, it is virtually unanimously agreed by macroeconomists that loose monetary policy is necessary during recessions. The reason why Great Depression became &quot;Great Depression&quot; is precisely because Fed decided to follow contractionary monetary policy (see Friedman &amp; Schwartz Monetary History of the US). Great Recession of 2008/9, as bad as it was, was not even a half as bad as Great Depression if we look at metrics such as unemployment (during GD it was <span class="math-container">$\approx 25\%$</span> during GR <span class="math-container">$\approx 10\%$</span> see Petrosky-<a href="https://www.nber.org/system/files/working_papers/w19207/w19207.pdf" rel="nofollow noreferrer">Nadeau &amp; Zhang 2016</a>)  or fall of output (see <a href="https://eh.net/encyclopedia/economic-recovery-in-the-great-depression/" rel="nofollow noreferrer">here</a> discussion of drop in US output during GD and here  <a href="https://fred.stlouisfed.org/series/A939RX0Q048SBEA#0" rel="nofollow noreferrer">Fred stats</a> for GR).</p>
<p>Lastly, there is generally a consensus among policy economists that technocratic economic institutions, run not by elected officials but experts and technocrats, such central banks, various regulatory bodies such as Securities and Exchange Commission (SEC) or  Federal Trade Commission (FTC) should deal with technical economic matters and leave matters of redistribution of either wealth or income to elected officials who still have plenty of policy tools to, at least in principle, achieve any level of relative inequality their constituency desires. In principle arbitrary GINI coefficient could be achieved through arbitrary taxation and redistribution (although the same does not hold for absolute welfare and material standards). This being said there is no economic reason why technocrats should not be in charge of inequality this comes down more to moral philosophy and to belief that equity (as opposed to efficiency) related objectives  should be decided democratically.</p>

CC BY-SA 4.0
2021-04-28T11:22:54.343Z
According to Saez 2016: there has been a sharp increase in income and wealth inequality since 1970s. Well the US came off the gold standard in 1971 and in 1973 flexible exchange rates were introduced. According to economy professor David Howden: "The reason why there is growing income inequality since 1973 is a direct result of this monetary mayhem.": https://mises.org/wire/inequality-and-gold-standard
Andy
CC BY-SA 4.0
2021-04-28T11:34:38.887Z
Clearly wealth inequality does not just depend on interest rates. It probably also depends on tax policy, globalization and immigration.
Changing tax policy may be politicially difficult.
However if the monetary policy is indeed driving increases in inequality, this is hard to understand for the US population.
This can lead to a polarized society and a search for scapegoats like a milder version of the hatred for jews that occured in the Weimar republic due to failed monetary policies.
From my understanding this is an argument Steve Forbes and Ray Dalio are making.
Andy
CC BY-SA 4.0
2021-04-28T12:41:31.830Z
@Andy That mises.org article linking wealth inequality to abandonment of gold standard is just pure conjecture, and it is definitely not accepted by scientists. It also just seems to be confusing correlation with causality. For example, France went off gold standard in 1936 and data clearly show that wealth  inequality in France **rapidly declined** https://wid.world/country/france/. So with all respect to Howden, this completely flies in face of a hypothesis that gold standard has anything to do with this. Unless one wants to argue that gold standard magically affects inequality in US
1muflon1
CC BY-SA 4.0
2021-04-28T12:43:56.877Z
differently than in France. Again peer review studies do not agree on a single reason for changes in wealth inequality. Globalization, change in institutions (decline in union memberships), economic growth, taxation, some argue there are cyclical rises and declines in inequality  and to some extent also monetary policy are mentioned across literature (although not really gold standard and that argument seems to hold little water just casually looking at data) as factors affecting wealth inequality.
1muflon1
CC BY-SA 4.0
2021-04-28T16:11:16.560Z
The plot on WID you linked to shows income inequality.
There was a rapid decline in income inequality in France in 1936.
BTW income inequality also rapidly inclined in 1931 which was the year Austria's largest commercial bank defaulted,
sending economic shockwaves trough Europe. It seems that you are correct that clinging to the gold standard was a bad idea in the face of an economic depression.
However for wealth inequality I find that it has been on a downward trend in France since ca. 1905 with no noticable change in 1936.
Andy
CC BY-SA 4.0
2021-04-28T16:11:52.643Z
Even though France and USA are both off the gold standard there may be a huge difference in how much money their respective central banks have printed.
There may also be large differences in the tax system between France and USA making it difficult to compare.
Also please note that I proposed that loose monetary policies is a factor in increasing wealth inequality, not the only one.
Andy
CC BY-SA 4.0
2021-04-28T16:33:38.223Z
@Andy no the link I sent you shows decline of wealth inequality as well you just have to click on the wealth inequality tab unfortunately any time I tried to share the link the tab gets reset to income inequality but if you switch it to wealth inequality it shows clear decline after 1936 (you can switch it by ticking wealth of top 10% instead of income on left green panel). Also excuse me but in France share of wealth of top 10% declined from about 76% in 1936 to about 55%. If approximately 20% decline in share of wealth going to top 10% is “not noticeable” then I don’t know what is
1muflon1
CC BY-SA 4.0
2021-04-28T16:43:13.897Z
OK sorry my bad I did not notice the other graphs further down. What I meant was that share of wealth of top 10% was declining also in 1934, 1935. It did not start declining even more rapidly in 1936. Instead it carried on its downward trend in an almost straight line. So there seem to be no correlation between going off the gold standard in 1936 and changes in wealth inequality. Instead it seems something else is driving the changes. According to Piketty a progressive tax system was introduced in France in 1914. I think this is what we see the effect of.
Andy
CC BY-SA 4.0
2021-04-28T16:48:40.717Z
@Andy and so what? Note I am not saying the decline happened as a result of abandoning gold standard. I am claiming that if someone argues that just because in US inequality increased over time abandoning gold standard creates more inequality then this decline clearly shows that is rather just arguing based on random time correlation than any true underlying relationship otherwise we should see increase in inequality in other countries that abandoned gold standard but in many we see exactly the opposite and a decline of inequality
1muflon1
CC BY-SA 4.0
2021-04-28T16:57:29.820Z
Let us call the time derivative of wealth inequality for dWI/dt, loose monitary policies for LMP and progressive tax for PT.
I then propose a simple differential equation:

dWI/dt = LMP - PT

In Frances case PT >> LMP leading to a reduction in wealth inequality over time.
In USAs case LMP >> PT leading to an increase in wealth inequality over time.
Andy
CC BY-SA 4.0
2021-04-28T17:58:05.783Z
@Andy but loose monetary policy has absolutely nothing to do with gold standard. Country can in principle have as loose monetary policy as it wants under gold standard. As mentioned in my answer empirical literature shows that there is some relationship between loose monetary policy and inequality but you brought for some reason gold standard into that. What you would need to show is that in us it was precisely the event of gold standard abolishment that drives inequality if that’s your argument
1muflon1
CC BY-SA 4.0
2021-04-28T19:04:04.490Z
From my understanding the amount of money is constant under the gold standard since money can be exchanged for gold and the US reserve of gold is fixed.  
Therefore the fed could not print money = QE when the US was on the gold standard.
Andy
CC BY-SA 4.0
2021-04-28T19:08:30.580Z
@Andy well then your understanding is not correct. Money supply is definitely not constant under gold standard - I don’t know where you heard that but that is blatantly false. 1. New gold can be mined - it’s not like there is not large number of that stuff lying underground - increase in supply of gold increases money supply. 2. The conversion rate between gold and dollar was not fixed (at this holds for any GS system) once and for all. Government can always just decide to say that the exchange rate between gold and bucks will change from 1 Troy ounce =10usd to 1 Troy ounce = 1000 usd
1muflon1
CC BY-SA 4.0
2021-04-28T19:09:51.767Z
Hence even under gold standard arbitrary monetary expansion is possible.
1muflon1
CC BY-SA 4.0
2021-04-28T19:13:30.833Z
Yes but according to the Bretton Woods agreement the price of gold was fixed at 35 USD per ounce. Other currencies were pegged to the USD with the promise that they could exchange USD for gold at this rate. US had 2/3 of the worlds gold as a reserve to back this up.
Andy
CC BY-SA 4.0
2021-04-28T19:42:57.223Z
@Andy if I remember my monetary history from university the 35 dollar rate itself was not explicitly part of the agreement, but I would have to double check it. This being said even if it was, the same way as US unilaterally decided to cancel the convertibility of USD to gold without any notice or agreement with other countries to cancel it, the US could change the rate at which it converts instead of abolishing it if it would choose so. Sovereign states live in state of anarchy, countries like US can in principle unilaterally renege on any treaty they want
1muflon1
CC BY-SA 4.0
2021-05-31T14:56:31.460Z
@1muflon1 not really a standard if they can change it every year, is it?
Criticize SE actions means ban
CC BY-SA 4.0
2021-04-27T21:55:26.133Z
2021-04-27T22:01:33.207Z
2021-04-27T22:01:33.207Z
1muflon1
<p>The US congress &quot;has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates.&quot;(1)</p>
<p>It seems like the two objectives &quot;maximum employment&quot; and &quot;moderate long-term interest rates&quot; are at odd with each other?
At the moment the interest rates are far from moderate (extremely low).
From my understanding this is in order to reach maximum employment?</p>
<p>An interesting Federal Reserve Bank of New York staff report (2) finds that accommodative monetary policies (=QE?) leads to a small decrease in income inequality due to more jobs, but a large increase in wealth inequality.</p>
<p>Wealth inequality is already prevalent in the US (3).</p>
<p>Would changing the objectives of the Feds to:
low unemployment, stable prices, and moderate long-term interest rates
decrease or at least not increase wealth inequality?</p>
<p>(1) <a href="https://www.federalreserve.gov/faqs/what-economic-goals-does-federal-reserve-seek-to-achieve-through-monetary-policy.htm" rel="nofollow noreferrer">What economic goals does the Federal Reserve seek to achieve through its monetary policy?</a></p>
<p>(2) <a href="https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr959.pdf" rel="nofollow noreferrer">Monetary Policy and Racial Inequality</a></p>
<p>(3) <a href="https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality/" rel="nofollow noreferrer">Trends in income and wealth inequality</a></p>

<interest-rate><monetary-policy><inequality><nonexpert>
Could the Feds objectives be adjusted to decrease or at least not increase wealth inequality?
Andy
# Could the Feds objectives be adjusted to decrease or at least not increase wealth inequality?

(Asked by: username_0 on 2021-04-27)

The US congress "has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates."(1)

It seems like the two objectives "maximum employment" and "moderate long-term interest rates" are at odd with each other?
At the moment the interest rates are far from moderate (extremely low).
From my understanding this is in order to reach maximum employment?

An interesting Federal Reserve Bank of New York staff report (2) finds that accommodative monetary policies (=QE?) leads to a small decrease in income inequality due to more jobs, but a large increase in wealth inequality.

Wealth inequality is already prevalent in the US (3).

Would changing the objectives of the Feds to:
low unemployment, stable prices, and moderate long-term interest rates
decrease or at least not increase wealth inequality?

(1) [What economic goals does the Federal Reserve seek to achieve through its monetary policy?](https://www.federalreserve.gov/faqs/what-economic-goals-does-federal-reserve-seek-to-achieve-through-monetary-policy.htm)

(2) [Monetary Policy and Racial Inequality](https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr959.pdf)

(3) [Trends in income and wealth inequality](https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality/)

**Tags:** interest-rate, monetary-policy, inequality, nonexpert

---

## 1 answers

### Answer by username_1 on 2021-04-27. Score: 2 | Accepted answer

> Could the Feds objectives be adjusted to decrease or at least not increase wealth inequality?

Trivially, answer is yes. Congress could just give Fed a mandate for lowering inequality, the same way as congress could pass a law giving Fed mandate to bring world peace or solve world hunger or conduct space exploration. US is sovereign state and Fed is government institution and technically speaking US government can assign Fed whatever mandate it in its infinite wisdom chooses to.

> Would changing the objectives of the Feds to: low unemployment, stable prices, and moderate long-term interest rates decrease or at least not increase wealth inequality?

No. Wealth inequality does not just depend on interest rates. We actually do not yet fully understand what is driving wealth inequality, since data on wealth (as opposed to incomes) is harder to come by and only very recently we became able to reasonably measure it (see [Zucman 2019](https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080218-025852)), but there is virtually no doubt that it depends on more than just interest rates.

For example, economic growth tends to reduce wealth inequality between countries but does increase economic inequality within countries ([Zucman 2019](https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080218-025852)). Next wealth inequality depends on design of tax system, capital incomes ([Saez 2016](https://onlinelibrary.wiley.com/doi/full/10.1111/coep.12210?casa_token=UO-LiEhR35sAAAAA%3ApM4NMRNYi6OTBuFetaIG9u964AZ5qsWKnfXBj8CgWZ5SW6falmGuA3NB6nA98RNcIZdR2xPMRQjU-kE)) and other factors as well. So just keeping moderate interest rates would not reduce inequality or prevent its increase in itself.

Fed could probably do something about wealth inequality, if it would have mandate, but it would not be as simple as keeping interest rates 'moderate'. However, this would likely often conflict with its other two mandates and thus lead to worse economic performance, and hence the lower inequality might come at a cost of worse economic outcomes.

To illustrate this point, there is some evidence showing loose monetary policy during Great Recession increased relative wealth inequality in the US (D[omanski, Scatigna, & Zabai, 2016](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2744862)). However, it is virtually unanimously agreed by macroeconomists that loose monetary policy is necessary during recessions. The reason why Great Depression became "Great Depression" is precisely because Fed decided to follow contractionary monetary policy (see Friedman & Schwartz Monetary History of the US). Great Recession of 2008/9, as bad as it was, was not even a half as bad as Great Depression if we look at metrics such as unemployment (during GD it was $\approx 25\%$ during GR $\approx 10\%$ see Petrosky-[Nadeau & Zhang 2016](https://www.nber.org/system/files/working_papers/w19207/w19207.pdf)) or fall of output (see [here](https://eh.net/encyclopedia/economic-recovery-in-the-great-depression/) discussion of drop in US output during GD and here [Fred stats](https://fred.stlouisfed.org/series/A939RX0Q048SBEA#0) for GR).

Lastly, there is generally a consensus among policy economists that technocratic economic institutions, run not by elected officials but experts and technocrats, such central banks, various regulatory bodies such as Securities and Exchange Commission (SEC) or Federal Trade Commission (FTC) should deal with technical economic matters and leave matters of redistribution of either wealth or income to elected officials who still have plenty of policy tools to, at least in principle, achieve any level of relative inequality their constituency desires. In principle arbitrary GINI coefficient could be achieved through arbitrary taxation and redistribution (although the same does not hold for absolute welfare and material standards). This being said there is no economic reason why technocrats should not be in charge of inequality this comes down more to moral philosophy and to belief that equity (as opposed to efficiency) related objectives should be decided democratically.

> **Comments:**
> **username_0**: According to Saez 2016: there has been a sharp increase in income and wealth inequality since 1970s. Well the US came off the gold standard in 1971 and in 1973 flexible exchange rates were introduced. According to economy professor David Howden: "The reason why there is growing income inequality since 1973 is a direct result of this monetary mayhem.": https://mises.org/wire/inequality-and-gold-standard  
> **username_0**: Clearly wealth inequality does not just depend on interest rates. It probably also depends on tax policy, globalization and immigration. Changing tax policy may be politicially difficult. However if the monetary policy is indeed driving increases in inequality, this is hard to understand for the US population. This can lead to a polarized society and a search for scapegoats like a milder version of the hatred for jews that occured in the Weimar republic due to failed monetary policies. From my understanding this is an argument Steve Forbes and Ray Dalio are making.  
> **username_1**: @Andy That mises.org article linking wealth inequality to abandonment of gold standard is just pure conjecture, and it is definitely not accepted by scientists. It also just seems to be confusing correlation with causality. For example, France went off gold standard in 1936 and data clearly show that wealth  inequality in France **rapidly declined** https://wid.world/country/france/. So with all respect to Howden, this completely flies in face of a hypothesis that gold standard has anything to do with this. Unless one wants to argue that gold standard magically affects inequality in US  
> **username_1**: differently than in France. Again peer review studies do not agree on a single reason for changes in wealth inequality. Globalization, change in institutions (decline in union memberships), economic growth, taxation, some argue there are cyclical rises and declines in inequality  and to some extent also monetary policy are mentioned across literature (although not really gold standard and that argument seems to hold little water just casually looking at data) as factors affecting wealth inequality.  
> **username_0**: The plot on WID you linked to shows income inequality. There was a rapid decline in income inequality in France in 1936. BTW income inequality also rapidly inclined in 1931 which was the year Austria's largest commercial bank defaulted, sending economic shockwaves trough Europe. It seems that you are correct that clinging to the gold standard was a bad idea in the face of an economic depression. However for wealth inequality I find that it has been on a downward trend in France since ca. 1905 with no noticable change in 1936.  
> **username_0**: Even though France and USA are both off the gold standard there may be a huge difference in how much money their respective central banks have printed. There may also be large differences in the tax system between France and USA making it difficult to compare. Also please note that I proposed that loose monetary policies is a factor in increasing wealth inequality, not the only one.  
> **username_1**: @Andy no the link I sent you shows decline of wealth inequality as well you just have to click on the wealth inequality tab unfortunately any time I tried to share the link the tab gets reset to income inequality but if you switch it to wealth inequality it shows clear decline after 1936 (you can switch it by ticking wealth of top 10% instead of income on left green panel). Also excuse me but in France share of wealth of top 10% declined from about 76% in 1936 to about 55%. If approximately 20% decline in share of wealth going to top 10% is “not noticeable” then I don’t know what is  
> **username_0**: OK sorry my bad I did not notice the other graphs further down. What I meant was that share of wealth of top 10% was declining also in 1934, 1935. It did not start declining even more rapidly in 1936. Instead it carried on its downward trend in an almost straight line. So there seem to be no correlation between going off the gold standard in 1936 and changes in wealth inequality. Instead it seems something else is driving the changes. According to Piketty a progressive tax system was introduced in France in 1914. I think this is what we see the effect of.  
> **username_1**: @Andy and so what? Note I am not saying the decline happened as a result of abandoning gold standard. I am claiming that if someone argues that just because in US inequality increased over time abandoning gold standard creates more inequality then this decline clearly shows that is rather just arguing based on random time correlation than any true underlying relationship otherwise we should see increase in inequality in other countries that abandoned gold standard but in many we see exactly the opposite and a decline of inequality  
> **username_0**: Let us call the time derivative of wealth inequality for dWI/dt, loose monitary policies for LMP and progressive tax for PT. I then propose a simple differential equation:  dWI/dt = LMP - PT  In Frances case PT >> LMP leading to a reduction in wealth inequality over time. In USAs case LMP >> PT leading to an increase in wealth inequality over time.  
> **username_1**: @Andy but loose monetary policy has absolutely nothing to do with gold standard. Country can in principle have as loose monetary policy as it wants under gold standard. As mentioned in my answer empirical literature shows that there is some relationship between loose monetary policy and inequality but you brought for some reason gold standard into that. What you would need to show is that in us it was precisely the event of gold standard abolishment that drives inequality if that’s your argument  
> **username_0**: From my understanding the amount of money is constant under the gold standard since money can be exchanged for gold and the US reserve of gold is fixed.   Therefore the fed could not print money = QE when the US was on the gold standard.  
> **username_1**: @Andy well then your understanding is not correct. Money supply is definitely not constant under gold standard - I don’t know where you heard that but that is blatantly false. 1. New gold can be mined - it’s not like there is not large number of that stuff lying underground - increase in supply of gold increases money supply. 2. The conversion rate between gold and dollar was not fixed (at this holds for any GS system) once and for all. Government can always just decide to say that the exchange rate between gold and bucks will change from 1 Troy ounce =10usd to 1 Troy ounce = 1000 usd  
> **username_1**: Hence even under gold standard arbitrary monetary expansion is possible.  
> **username_0**: Yes but according to the Bretton Woods agreement the price of gold was fixed at 35 USD per ounce. Other currencies were pegged to the USD with the promise that they could exchange USD for gold at this rate. US had 2/3 of the worlds gold as a reserve to back this up.  
> **username_1**: @Andy if I remember my monetary history from university the 35 dollar rate itself was not explicitly part of the agreement, but I would have to double check it. This being said even if it was, the same way as US unilaterally decided to cancel the convertibility of USD to gold without any notice or agreement with other countries to cancel it, the US could change the rate at which it converts instead of abolishing it if it would choose so. Sovereign states live in state of anarchy, countries like US can in principle unilaterally renege on any treaty they want  
> **username_2**: @1muflon1 not really a standard if they can change it every year, is it?  

---

