Monday Morning Links

Miscellaneous material to start your week.

- David Dayen explains how fiscal policy intended to ensure growth for everybody is instead sending all of its benefits to the top end of the income scale - and thus failing to ensure any growth at all:

(L)et’s examine how central banks try to revive economies. They mainly try to lower interest rates in a variety of ways. This entices consumers to borrow cheaply, spurring more economic activity. Plus, consumers can refinance into lower interest rates on their current loans, saving them money that they could choose to spend. Without high returns from safe assets like Treasury bonds, investors push capital to business investment and other economic pursuits. And finally, banks with low borrowing costs can increase access to credit for individuals and small businesses.

Loose monetary policy has worked throughout recent history, but not since 2008. Take for example mortgages, the largest consumer financial product in the economy. Thanks to Federal Reserve actions, typical U.S. mortgage interest rates dropped from 6 percent to 3.3 percent from 2008 to 2013, even as the main federal funds rate was stuck at zero. Sufi uses this to discount the “zero lower bound” hypothesis as a cause of ineffective monetary policy: Through quantitative easing and other measures, the U.S. was able to reduce key consumer interest rates.

Yet housing didn’t contribute to economic growth in those years. That’s because too many households were locked out of accessing the low rates. They either lost their homes to foreclosure, or were “underwater,” owing more on their mortgages than the house is worth. As of March 2012, 70 percent of mortgage borrowers were paying interest rates of 5 percent or higher, even though the market rate was 3.8 percent.

The only people left to benefit from refinancing or purchasing mortgages were high-income earners with good credit scores, who have a lower “marginal propensity to consume,” meaning that they are more likely to save additional dollars than spend them. Citing research correlating high-debt households with higher propensity to consume, Sufi concludes, “The inability of heavily indebted borrowers to refinance has depressed spending.”
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If too many people fall into debt anyway, then aggressive debt relief is the best way for the economy to bounce back, relieving this clog in the distribution of monetary policy benefits. As we know, the U.S. ignored this policy idea after the recession, using a poorly designed loan modification program that did little for homeowners on their biggest debt burden. Not only did that leave millions to suffer, but it helped cancel out central bank activities and stunted economic growth.

If you follow this logic, policies that reduce inequality would also help enormously. A family that earns a decent living doesn’t have to go into hock to keep up with their monthly budget. They therefore maintain a stronger balance sheet and lower debt burden when times are tough, and Fed policies can more easily reach them. Inequality spurs household debt, and household debt spurs financial shocks and longer economic downturns. Therefore, the challenge of reversing inequality doesn’t just affect those losing out in the modern economy — it affects every one of us.

- Meanwhile, Tamara Khandaker reports on yesterday's Jobs Climate Justice rally aimed at fighting inequality and environmental degradation at the same time. And Stephen Leahy writes that we need to stop building new carbon-burning infrastructure in a matter of years to limit climate change to an even remotely manageable level, while Fiona Harvey highlights the OECD's research emphasizing the non-viability of coal power in particular.

- But lest we think the effort to ensure a cleaner, more prosperous future will go unopposed, Jenny Uechi reports on the oil industry's underhanded attempts to block climate change experts from even having a seat at the corporate table. And Mychaylo Prystupa finds that the Cons continue to put the job of regulating the resource industry in the hands of its executives, while Sue Bailey exposes the complete lack of knowledge as to how to contain the consequences of Arctic offshore drilling.

- Fred Hahn comments on the importance of keeping Hydro One and other critical infrastructure in public hands.

- Finally, Carol Goar writes about Dr. Stephen Hwang's efforts to identify and fight the social determinants of poor health.