What I did not discuss in yesterday's post, although I did allude to it here, is that finance is normative at the macroeconomic level, as well. This is the clear implication of Bill Clinton's famous quote:
You mean to tell me that the success of my program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?Just as corporate executives are rewarded for the ability to maintain the illusion of perpetual exponential growth in their share price at a rate that exceeds inflation, so, too, are the officials of national governments rewarded for their ability to maintain the value of sovereign bonds.
The fact is that money and inflation do not exist in microeconomics, which models a barter system. The concepts of money and inflation are instead part of macroeconomic theory, which is the level at which monetary policy and fiscal policy operate. In the U.S., the private Federal Reserve manages monetary policy, while fiscal policy is managed by the federal government.
While the metrics for measuring governmental success in the secondary bond markets are nominally different, the challenges of a financialized government are the same as those faced by financialized firms. When, as now, top line growth (measured by GDP for governments, revenues for corporations) appears to be slowing or falling, the only way to show continued, perpetual exponential growth at the bottom line (measured by bond yields for governments, earning for corporations) is to increase margins. That's the only way to maintain the present value of financial instruments (stocks and bonds) that have already been purchased. Through this lens, the calls for austerity in the United States are best viewed as calls to increase margins to ensure that Treasury bond holders don't take a haircut.
But what about the Fed's dual mandate to maintain price stability and ensure maximum employment? First, the so-called dual mandate needs to be read in its entirety to understand what it really says:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.Second, it must be understood that the Fed abandoned targeting monetary and credit aggregates in the 1980s, after Paul Volker proved that targeting monetary and credit aggregates did not actually have any effect on employment or inflation. Milton Friedman and other Chicago School monetarists were proven wrong, and the Fed went back to tweaking the federal funds rate.
At this point, the Fed merely works with federal officials to protect existing Treasury bond holders and keep future Treasury bond yields as low as possible. If that means a bunch of American fall into poverty, so be it.
But what about consumers? Aren't they an important part of economic theory, as well? Yes, they are, but economic theory is non-operative in a financialist economy. All that matters to the managers of corporations and governments is maintaining the illusion of perpetual exponential growth. That's why Obamacare screwed consumers by evergreening biologic patents (Pharma can't lose current profits and maintain the illusion of perpetual exponential growth), and that's why the "Food Tyranny" bill is rumbling its way through Congress right now, a gift to Monsanto and factory farms.