When Pope Francis speaks out, as he regularly does, about the widening gap between the rich and the poor in Western economies, many acknowledge his pious intentions but politely write off his recommendations on how to distribute economic wealth more fairly. Most business leaders are simply not interested in discussing the reality that in the last few decades the rich have been getting richer while the poor are now poorer.
Now something extraordinary seems to be happening. Janet Yellen, the Federal Reserve chairwoman, recently spoke at a conference in Boston where she said that she was “greatly concerned” by rising income and wealth inequality, and asked “whether it is compatible with American values”. She risked the condemnation of the Republican Party that generally finds little to criticise in the capitalist system.
Yellen is no leftie fanatic. At her confirmation hearing to become Fed chairwoman, she had no problems defending quantitative easing – the practice of central banks ‘printing money’ to save some countries and corporate businesses by buying their debt.
Many social analysts and economists argue that quantitative easing has helped the rich become richer by helping them to buy financial assets at relatively low prices, then seeing the price of these assets appreciate over time. On the other hand, poorer people have either lost their jobs as a result of the ongoing recession or had to make do with depressed wages as their employers struggled to keep their businesses floating.
When grilled by US parliamentarians about her views on quantitative easing, she said that she did not believe that quantitative easing was behind income inequality. She added: “I believe that the policies we have undertaken have been meant to generate a robust recovery”.
But Yellen was not being untrue to her liberal beliefs when she defended QE. She wants to depart from the rather sterile approach of her predecessors when it comes to speak out on the big issues that affect the society she lives in.
She wants to popularise her role by meeting unemployed people and speaking out on issues beyond monetary policy.
Without commenting on specific monetary or fiscal policies that she may not necessarily agree with, she speaks her mind on the broader social issues that are inescapably intertwined with the way the US economy is being managed.
“The extent and continuing increase in inequality in the United States greatly concerns me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression,” Yellen said.
Most business leaders are simply not interested in discussing the reality that in the last few decades the rich have been getting richer while the poor are now poorer
I have yet to hear a political leader make such a bold political comment about one of the most disturbing issues relating to the wellbeing of most Western societies. So should business leaders risk the anger of politicians by speaking out on non-partisan political issues that are so important to society?
I know that the answers is ‘yes’ but that the consequences would likely be sanctimonious condemnations by the political class who do not like to be lectured on social issues by those who have a sensitive social conscience but are not politicians.
Yellen did not stop at expressing her concerns about rising inequality. She identified a number of issues that may be causing this worrying phenomenon. She quoted from Fed research when she maintained that there are “four building blocks to promote more economic opportunity: resources for children, affordable higher education, business ownership and inheritance”.
She criticised the US educational system that does not provide equal educational opportunities to all children as richer states can afford to spend more to get the best teachers. She was equally outspoken about the high cost of university education in the US and “the large and heavy burden of paying for it” that makes it harder for many young people to take advantage of educational opportunity.
A similarly debilitating cause of increasing inequality is associated with the fact that it is becoming harder to start and build a business, as only a small minority of people can rely on inheriting enough from their parents to start up a new business.
Yellen focuses solely on inequality. She does not prescribe any particular policies. She does not define what monetary or fiscal policies are needed to address this social problem. She certainly does not promote greater involvement by governments by taxing more the rich and giving handouts to the poor.
She is just the voice of conscience of Western society.
johncassarwhite@yahoo.com