What's "Really" Behind Gross Inequalities In Income Distribution?
1. Fractional Reserve Lending
2. Inflation targeting by the Fed
3. Moral hazard policies of the Fed that encourage winner-take-all speculation
4. Government interference into free markets
5. Public unions
The result of all five practices is the hollowing out of the middle class from the bottom up. The solution is sound money, elimination of the Fed, the end of public unions, and minimal government interference in the free markets, not income rules, not misguided regulation of banks, and not more debates about how to measure something that cannot be measured.Here's reality: the gross inequalities in income distribution pre-dated the formation of the Federal Reserve and, therefore, predated items 2 and 3 above. Furthermore, those inequalities also predated items 4 and 5, both of which started with the New Deal, which did not go into full swing until the late 1930s. Indeed, if you scroll down to Figure 1 of this article, you will see (1) government regulation and the establishment of private and public unions correlate quite nicely with a significant REDUCTION in income inequality and (2) union-busting in the Reagan era and bank de-regulation approved by Carter but implemented during the Reagan era signaled a return to the income inequality that existed when the Fed was formed. Make sure to look at Figure 2.
So, apparently, eliminating Mish's items 2-5 won't change a thing. What about eliminating fractional reserve lending? Well, that's a relatively new innovation, as well, at least with respect to the broader economy. First, fractional reserve lending wasn't invented until the 17th century. Second, savings banks for the common man didn't come into existence until the 19th century. My intuition is that most lending in the 19th century and early 20th century was commercial nature, that personal home loans were rare until the New Deal in the late 1930s.
In other words, eliminating Mish's item 1 won't change a thing, either.
Fundamentally, there is a gross inequality in income distribution because labor is not voluntary. Fuck around with money, credit and market regulation all you want, but all you're changing is the nature of life in bondage. Under the current fiat money system, the "monetary vortex" (see the commentary starting at 1:15:40) collects its rents on the back-end through inflation. Under Mish's "sound money" system, the constrained liquidity created by private money and credit will force the payment of rents on the front-end through interest payments that seem unwarranted in an inflation-free, slow growth environment.