Engine of Inequality. Karen Petrou

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capital asset of the 21st century. Typically, Gilded Age assets were hard assets: industrial products that ended up being sold. Today's economy runs on the soft assets of computer algorithms that crunch vast amounts of data to produce as their product a new piece of information. The business of networks like Comcast, AT&T, and Verizon, and of platform service providers like Google, Facebook, and Amazon is not just connections or services, but the digital information about each of us that is collected via those activities and subsequently reused to target us with specific messages.46

      What if all this power to send us messages combines with the power to hold and manage, transfer, and even create our money?

      Banks are barred from commerce because of manifest conflicts of interest and risks when a lender is also a manufacturer, advertiser, publisher, and retailer. Big-tech platform companies have no such constraints and can thus condition financial-product access on the purchase of other goods or services, alter pricing based on personal financial information or relationships, and otherwise transform financial services with far-reaching inequality impact.

      The first fix is for the Fed to see America as it is, not as it was. Top Fed officials came of age in the 1970s and 1980s when America was among the most equal nations in the world. At that time, monetary-policy theory could rightly assume that aggregate data about income and wealth represented the vast majority of Americans.

      As we will also see, the wealth effect has made markets prone to another risk. Known as “moral hazard,” it occurs when investors take high-risk bets, insouciant in the knowledge that the Fed will always bail them out. It did in 2008 and again in 2020, making financial markets rise ever higher even as unemployment rose to unprecedented heights. The Fed readily admits it doesn't know how to normalize the trillions now on its hands in the wake of all its post-COVID rescues, suggesting very slow normalization should anything like normal ever again be possible. We will see in Chapter 11 how to take the Fed's heavy hand off the market as quickly as possible without overturning the market at the same time.

      And, federal financial regulators should redesign post-crisis regulation so that its burden is borne equitably by all financial companies, especially those companies that offer higher-risk financial products to vulnerable households. This would expand the supply of equality-essential financial services beneath an umbrella of regulation that protects at-risk consumers. It would also ensure that privateering financial companies die by their own hand instead of receiving the trillions of dollars in bailouts proffered during the great financial crisis and again as COVID struck. We'll see how asymmetric regulation creates equality and financial-system risk in Chapter 8, with solutions laid out in Chapter 10. These include new ways to apply like-kind rules to like-kind companies, changes to key rules to increase credit availability for low- and moderate-income (LMI) households, and new financial institutions focused solely on economic equality dedicated to under- and unserved communities, including those of color.

      Finally, the Fed and bank regulators must reckon quickly with the new, digital forms into which money is quickly being transformed. Financial policy builds the engine of economic inequality, but money is its fuel. If it joins financial policy in revving up the most powerful – i.e., the wealthiest – parts of the engine by flooding them with gas, the US financial system will quickly become still more inequitable and thus even less stable. We will see in Chapter 9 how a new central-bank digital currency that harnesses the fuel in a newly designed equality engine would set us quickly on a more level, tranquil road.

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