Nick Hanauer:

So happy new year, Pitchfork Economics listeners. Hope everybody is doing well. I’m doing fine, although recovering from COVID and thank you so much to all of those of you who left us great reviews over the holiday break. I asked for reviews for Christmas or Hanukkah as the case may, and a bunch of you did it, and thank you so much. And now you can rate us on Spotify as well. So please give us five stars, please. Pretty please.

David Goldstein:

Remember, other podcasts make you listen to all those stupid ads. All we ask is for a five star review.

Nick Hanauer:

That’s it. That’s the price. The policies enacted by the Federal Reserve over last 10 years have exaggerated and increased economic inequality in the country.

Christopher Leonard:

The Federal Reserve is the central bank of the United States, and it has a super important job, to create and manage the currency we use.

David Goldstein:

Where do those dollars go?

Christopher Leonard:

The Fed creates dollars, not in the bank account of ordinary people, but with an exclusive group of financial institutions on Wall Street.

Speaker 4:

From the home offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the best place to get the truth about who gets what and why.

Nick Hanauer:

I’m Nick Hanauer, founder of Civic Ventures.

David Goldstein:

I’m David Goldstein, senior fellow at Civic Ventures.

Nick Hanauer:

Yeah, so a couple of years ago we recommended an excellent book, Kochland: The Secret History of Koch Industries and Corporate Power in America. And we are thrilled today to have the author of that book on the show. Today, we get to talk to Christopher Leonard, who is a business reporter and executive director of the Watchdog Writers Group at the University of Missouri, School of Journalism about his new book, The Lords of Easy Money: How the Federal Reserve Broke the American Economy. And it’ll be a really interesting conversation because the Federal Reserve is a complex institution that is not well understood by most Americans, but has a huge impact on the economy and economic policy in. And so, geez, Goldie with that, I think we should just get right into our conversation with Chris about the Federal Reserve.

Christopher Leonard:

So my name is Christopher Leonard. I’m a business reporter and I write about corporate power and the American economy. And I’m here to talk my new book, The Lords of Easy Money, which is a recent history of the Federal Reserve and its experiments over the last decade.

Nick Hanauer:

Well, welcome to the podcast.

Christopher Leonard:

Thank you.

Nick Hanauer:

And to make sure that this is a conversation that our listeners can understand, let’s, because it’s somewhat technical as you know. So let’s start with what is the U.S. Federal Reserve system, what’s its scope and what’s it for?

Christopher Leonard:

Yes. And let me please say, I don’t know whether I succeeded or failed, but my entire goal for this book, the whole reason I wrote it is because I’m a business reporter and as far back as 2016, I had personally come to realize how dramatically the Fed was affecting our lives and reshaping our economy. And I wanted to write a book that lays this out in plain english that you can read when you’re tired in a hotel room on a business trip. And hopefully at the end, it gives a very workable understanding of what the Fed is. There is some stuff that’s complicated here, but honestly it’s no more complicated than like an HVAC system in office building. It takes a little bit of time to unpack some stuff, but it’s really not rocket science as much as they would like you to think it is.

Okay, what’s the Federal Reserve? The Federal Reserve is the central bank of the United States and it has a super important job. Its main job is to create and manage the currency we use. That thing we call the dollar. That’s actually a Federal Reserve note. And basically a nation needs a central bank to create and manage a currency. The United States tried to do without a central bank and we really couldn’t do it. So in 1913 we created this very strange and interesting system called the Federal Reserve system. It’s almost like the country itself in that, it’s a network of 12 banks that are kind of like little states and they all report to this main office in Washington, D.C. And their job is to basically create dollars, okay? That’s the Fed’s superpower. It can create new dollars out of thin air and it manages our money supply.

David Goldstein:

And it does this how? When it creates, just the process, when it creates dollars, where do those dollars go?

Christopher Leonard:

Okay, this is super important. And this is one of the things I like to talk about is like the mechanics of how this work, because it really comes in importantly later. The Fed creates dollars, not in the bank account of ordinary people, but with an exclusive group of financial institutions on Wall Street. Okay. There’s this group of 24 banks on Wall Street, financial institutions, like JP Morgan, Goldman Sachs, Wells Fargo. And this collection of 24 banks on Wall Street, literally they have a license, they have a special ability to do business directly with the Federal Reserve. And this is how the Fed creates money. And it’s through a really interesting mechanism. The Federal Reserve Bank of New York has a trading floor, where I’ve toured this trading floor. And it looks like the kind of typical Wall Street trading floor you see, with a bunch of cubicles and a bunch of people typing at computers.

What a Federal Reserve trader does is they call up one of these primary dealers, let’s say at JP Morgan. And they say, “Hey, JP Morgan, we want to buy $8 billion worth of treasury bills from you.” JP Morgan says, “Okay, fine.” And sells them to the Fed. And then the Fed trader says, “Okay, JP Morgan, look inside your special bank account at the Federal Reserve.” Boom, $80 billion just appeared, okay? That’s how we financed this purchase was we just made 8 billion, I’m sorry, I said 80. They make the money to make the purchase appear in the primary dealer’s bank account. And that’s how the Fed creates money. It buys these assets from primary dealers on Wall Street and for many decades, okay? From basically 1950 until 2008, that’s how the Fed influenced our supply of money. They would create a little extra money when they wanted to loosen the supply of money and then they would destroy money by basically selling assets and bringing the dollars in and then liquidating them. So the Fed would kind of gradually loosen or tighten the money supply by making these purchases on Wall Street.

Nick Hanauer:

So in sort of the broadest way, how have these policies, how have the Fed’s policies put U.S. economic stability at risk? And how have they accelerated income inequality?

Christopher Leonard:

Yeah, absolutely. Why are we talking about this? This sounds pretty arcane, but starting in 2010, the Fed really broke the graph of history and we entered a new era of modern finance, okay? The Fed had actually contributed to the crash of 2008 and the Fed did this by keeping money too cheap for too long, okay? We talk about interest rates. You might hear the Fed got together and they lowered interest rates or they raised interest rates. The interest rates are just the price of money, is really what that is. And the Fed had kept money so cheap for so long that people borrowed and bought and borrowed and bought. And we had the housing bubble, which then exploded. And in the aftermath of that, go back to those years, really dark years, honestly, economically, 2009, 2010, our economy was limping out of the wreckage of the crash of ’08.

And unfortunately at that very moment, our democratically controlled institutions like Congress just ceased to work, okay? November 2nd, 2010, the Tea Party takes over the House of Representatives and they basically bring all fiscal action by our federal government to a grinding halt. And it’s not coincidental that at that very moment, the Federal Reserve embarks on this experiment. And what the Fed says back then is, “Okay, we’re going to keep interest rates pegged at zero,” which is startling, okay? The interest rates had brushed up against zero a couple times in the past, but the Fed said, “We’re going to pin them at zero for years, make money free. And at the same time, okay? We’re going to do this program called quantitative easing.” And really that’s just a fancy, frankly, intentionally opaque term for a very simple idea, which is that the Fed’s going to turn around to Wall Street and buy asset after asset after asset to pump money into of the Wall Street financial system.

So in the first century of its existence, the Fed created about $900 billion. That means it increased our money supply to about $900 billion. Let’s call it a trillion. In the few years after the crash of ’08, the Fed expanded the money supply by 3.5 trillion, okay? The that’s 350 years worth of money printing in a few short years. Incidentally last year, or I’m sorry, in 2020, the Fed printed about 300 years worth of money in about three months. So is this radical experiment in easy money or flushing the Wall Street system full of new cash? And what’s so important about that is the plumbing we just talked about earlier. Again, they’re not creating this money in the bank accounts of millions of Americans, they’re creating it on Wall Street. And the Fed knew that this program was going to pump up the price of assets, it was going to pump up stock markets, corporate bond markets, and make these asset prices rise.

Well, the top 1% of our country owns 40% of all our assets. The bottom half of all Americans only own 7% of our assets. So the Fed is pumping up asset prices, which really benefits a tiny group of hyper rich people. And at the same time, it creates these asset bubbles that inevitably collapse as we saw in ’08 and 2020. So that’s why I say these policies clearly have dramatically widened the gap between the rich and everybody else and they’ve created these bubbles on Wall Street that periodically explode.

David Goldstein:

The subtitle title of your book is, How the Federal Reserve Broke the American Economy. And I don’t argue with your thesis. Clearly, quantitative easing dramatically contributed towards increasing economic inequality over the past decade. But had the Federal Reserve not acted, and obviously Congress was not going to act in that timeframe for the political reasons that you outline, might the economy have broken in a different way?

Christopher Leonard:

Wonderful question. And I won’t even call that the million dollar question. That’s a $3.5 trillion question, right? Like, what was the Fed supposed to do starting back in 2010? And I do want to say when I started this book, one of my, like every business reporter, right? One of my role models is Michael Lewis. And I really wanted to write kind of a moneyball about quantitative easing, but as I reported it, the subtitle changed from how quantitative easing changed the world to how the Fed broke the economy. And I am fully cognizant of what a confrontational kind of statement that is. And boy, a lot of people are going to push back on that. However, for me, it really came from the reporting and here’s exactly what I mean. When I say the Fed broke the economy, they dramatically widen the gap between the rich and everybody else, which is wildly destructive, particularly to a democracy. It’s probably one of the worst trends we see.

At the same time, these policies encouraged record breaking upswells in debt for households, corporations, which I detail in the book and our government. And at the same time, when you pump up asset prices like this, you create enormous fragility and volatility in the financial markets. That’s why we see 100 year floods every few years in the financial markets. So that’s why I say the economy is broken, but to your bigger question, geez, sure it’s easy to sit here and criticize later, what would you have done at the Fed? Well, I’ll tell you what, as an author, I’ve had the real luxury frankly of time and to go back and read through the transcripts of the actual debates that they were having in the Fed, inside the most important policy committee at the Fed, which is called of the FOMC or the Federal Open Market Committee.

They keep transcripts of this that are confidential until five years later when they release them. And very few people actually go back and read them. And I’ll tell you what, that’s really what changed my view of this is when you read the debates, let’s just say in 2012, when the Fed undertakes the largest round of quantitative easing in history, the Fed knew at the time that what this program was going to do was pump up asset prices even further, okay? It was going to enrich the private equity companies, it was going to enrich the big banks, it was going to create stock market highs, which turn into stock market bubbles, and it was going to achieve only very minimal benefits in terms of creating actual, real jobs out there in the economy. And it was going to pile up these long term risks of asset bubbles, but the Fed did it anyway.

And so this isn’t like a sexy political slogan, but in reality, I think the Fed could have displayed restraint, humility and wisdom in 2008, rather than this political interventionist, a really aggressive policy that got great headlines at the time, because who’s not going to argue with creating money in this way are the BlackRocks of the world and the Carlyle groups and the JP Morgans. They always praise these easy money policies. So you get a lot of pats on the back, but you are writing up a bill that must be paid later. And that’s the real problem here. And people inside the Fed were arguing that at the time.

Nick Hanauer:

But Chris, to Goldie’s point, let me use an analogy. So our team here at Civic Ventures, we run a lot of initiatives in the state to accomplish the policy objectives that we think are important and we are regularly and roundly criticized for doing so because we’re effectively subverting the… We’re letting the legislature off the hook effectively, right? That, “Well, if you guys didn’t run all these initiatives then the legislature would just fix all this stuff.” But I guess our view is that they don’t and won’t. And so we used our imperfect tool to try to generate progress in the best way that we can. And so I’m a little bit, I guess I’m a little bit sympathetic to the guys at the Fed. It probably was all guys, wasn’t it? Just being-

Christopher Leonard:

Well, some notable exceptions like Janet Yellen.

Nick Hanauer:

Yeah, yeah. That’s right. Janet was there. Like being trapped in this circumstance where Congress will not act, you’re sort of doing the best that you can to generate economic vitality or growth in any way that you can. Look, believe me, I know a lot of these characters and I benefit from a lot of these interventions. So I definitely am with you that it’s a strategy that very inefficiently benefits the broad society, and very precisely benefits a few people at the top. I just wonder if I had been in charge, would I have done something that different given the pressures and the panic that those folks must have felt about the state of the economy generally? I don’t know. These are hard questions, I guess.

David Goldstein:

I mean, the counterfactual at the time was another great depression.

Nick Hanauer:

Correct. Correct. Yeah.

Christopher Leonard:

Well, boy, could we please disentangle a couple things? And look, I mean, Nick, how can I disagree with that? I mean, listen, one of the background pathologies that drives this whole story is the dysfunction of Congress and our democratic institutions writ large in America, okay? My previous book was about Koch industries, it was about corporate power, it was about the lobbyists that write our laws, it was about the destruction of labor unions. These are huge, complicated problems that have nothing to do with the Fed, and really require like a lot of work to overcome. And I think your point is a great one of, I mean like, okay, you know what? The reality is Congress isn’t going to do anything. Are you saying that the Fed was supposed to sit on their hands out of some high principle and-

Nick Hanauer:

Yeah.

Christopher Leonard:

Okay. And then Goldie, I think you said the alternative was a great depression, right?

David Goldstein:

Well, that was the fear at the time. We kept fearing and we avoided that. So you don’t know whether we would’ve avoided it either way, but that was the fear at the time.

Nick Hanauer:

Yeah.

Christopher Leonard:

If I could, though, we got to talk about the time, because there’s the hot crisis of late 2007 to early 2009, the writ large global financial crisis, total seizure of the system, absolute disaster, okay? Of course, it is not just appropriate, but necessary in a moment like that for the Fed to step in and frankly print as much money as needed to stop the panic. The Fed, I mentioned earlier, was created to kind of manage and operate our currency, it was also created to be the lender of last resort, to short circuit panics. Okay. I don’t think that there are very many people anywhere that argue against that. I mean, maybe some like very, very libertarian gold standard type people. What I’m talking about is afterwards, November 2010. Things were bad. Things were bad. But the person who knew they were going to be bad more than anybody was Ben Bernanke, who had written many, many papers about the long hangover from debt crises, he called it the debt overhang.

Everybody knew we had a big hole to crawl out of from the financial crisis and growth was going to be weak for years. And that’s a scary and dangerous thing, but it’s hard for me not to draw military analogies. It’s like the idea that in November 2010, we are going to start pumping $600 billion into Wall Street just to look like we’re doing something. It’s sort of the same mentality that I think our military or leadership could, in foreign policies displayed when they’re like, “We’re not going to negotiate with the Taliban. We’re going to keep this war going for years and years.” Sometimes humility and restraint are the best policy. And that’s not easy to sell, and it doesn’t make anybody look courageous at all. But again, I can’t overstate that within the Fed, there were good and reasoned critiques that this was a bad path to take. Because once you start printing money like this, it is extraordinarily difficult to stop and withdraw. And then you’ve got the price tag of these asset bubbles that crash. So you got to take that all into your thinking.

David Goldstein:

Can I ask you something about process?

Christopher Leonard:

Yeah.

David Goldstein:

How powerful is the Fed chair when there is not a consensus on something like this? Does the chair tend to get their way?Or could the board of governors on the committee have overruled the chair?

Christopher Leonard:

Okay. Super fascinating question. Like, the politics of how all this works was really, really interesting to me, okay? So the Fed is that network of 12 banks we just talked about and the headquarters is in D.C., in the Eccles Building. And the headquarters is not a bank. It’s just an administrative office. And the most important committee that makes all these big decisions is the FOMC. And the FOMC has 12 votes, but seven of those votes are permanently reserved for these people called governors at the Fed, okay? They’re political appointees who work in Washington, D.C., and it’s the board of governors. And they can out vote the regional bank presidents at every meeting.

What you see over time is that the chairman of the Fed, first Greenspan, then Bernanke, briefly Yellen, now Jay Powell have gotten more and more power concentrated into the role of the chairman. And one of the more interesting interviews I did was with a former governor named Betsy Duke, who is a former executive at Wells Fargo, who came in and was a governor at the Fed during these really consequential votes on QE. And she explained to me on the record really clearly how, what they do is before there’s a meeting, the chairman can meet individually with the governors. And they bargain and come to a conclusion and an outcome before the meeting even arts. It’s called option B. At the meeting, they consider A, B, C options. B is always the middle, Goldilocks thing. And the chairman will orchestrate what option B is going to be before the meeting even happens, before there’s even a vote.

So there’s not just tremendous power for the chairman in that they’re the one person that kind of becomes the clearinghouse for all the arguments between the governor, but there’s also a very intense culture of consensus that, it’s even hard to describe, but the Fed has found that it’s very important to have unanimous votes because they really want the public to have confidence in what they’re doing, and they really wanted to appear that they’re really just solving equations. And so it’s hard to break against that. So yeah, the chairman has a tremendous amount of power. You see virtually no dissent and no meaningful dissent when it comes time to vote on these policies.

David Goldstein:

Yeah. So you’re saying it’s a confidence gain.

Nick Hanauer:

Well, that’s what an economy is, is a confidence gain.

David Goldstein:

Just a-

Christopher Leonard:

Right? I mean, that’s what Fiat currency is. Yeah.

Nick Hanauer:

Yeah, absolutely.

David Goldstein:

Yeah, just a giant con.

Nick Hanauer:

Yeah. But I’m super interested in, if you think that, other than nothing, what could, if you had run the Fed, what would you have done? Is there a, I guess we are getting to our benevolent dictator question, which is if you just stipulate, you can’t fix Congress and you’re in charge of the Fed. Over the last 10 years, was there a way that that institution could have been used in a more constructive way?

Christopher Leonard:

There are really two main characters of this book. One main character is the current chairman, Jay Powell, who I think his story is just fascinating. Born in D.C., gets in the private equity game, makes a fortune, is in the corporate debt world and runs the Fed, really fascinating guy. But the other main character is Thomas Hoenig. And he was a president of the Kansas City Federal Reserve Bank. And the really historic vote, I mentioned earlier in November 2010 to unleash quantitative easing, it was a vote of 11 against one. There was one guy who voted against it, which as a reporter you think, “Well, what’s that person’s deal?” And Tom Hoenig has been kind of remembered by history as being a crank, as being just a cranky dissident, as being an ultra hawk, as being kind of a gold bug who just dissented and dissented.

But when you actually dig into the transcripts and what was written at the time, that’s absolutely not true. Hoenig, as a member, a voting at member of the FOMC, he had really never dissented and had frankly been on the committee longer than anyone else, by the time 2010 came around. At which point, he voted eight times consecutively against what the Fed was doing. And it was based on these concerns. Hoenig had been around through the dot-com bust, through the housing bubble bust, the inflation of the 1970s. And what he was saying in 2010 was if we keep interest rates pegged at zero, and if we pump $600 billion into the Wall Street, which by the way, ended up being like a drop in the bucket, but if we pump this money into the banking system, we’re going to do three things, okay?

We’re going to create massive asset bubbles that are probably going to explode later, we’re going to benefit the very rich of the rich and the biggest of the big banks over the working class, and once we start pumping this money and keeping rates at zero, it’s only going to get harder to pull back. And he was correct on all those points. And what he was advocating for at time, in 2010, was just keep interest rates close to zero. And maybe over time gradually increase them to 1%, which historically is a wildly low interest rate. I mean, historically the rate has been between 3% and 5%, most previous decade.

So he was arguing for a platform of moderation to let the economy basically heal itself as it was slowly starting to do in 2010, again, not great, anemic growth, but growth was starting to happen. And he was saying if we pump money into this very nascent recovery, we’re going to start creating big bills to pay later and big distortions. And I just will throw my lot in with him, I suppose, at this point. I think he was right. I think the Fed should have shown moderation and should have kept interest rates close to zero and then steadily raise them to 1% to let the economy start to heal, develop and grow on its own without trying to supercharge it through money pumped into Wall Street.

David Goldstein:

And do you think that possibly there’s a role for the Fed in, for lack of a better term pursuing qualitative easing, that instead of just dumping money into the big banks, I know during the pandemic, they bought municipal bonds to try to keep local governments afloat as revenues crash. But for example, something I’ve been looking at is municipal bonds, low interest rates to fund housing, to build housing in the missing middle. The Fed could buy those bonds, right? They have the authority?

Christopher Leonard:

Well, yeah. Well, what an interesting question. And I’m not trying to be glee, but the Fed’s authority is a moving target. I mean during the crash of 2020, the Fed straight out bought corporate junk debt and securitized corporate junk debt and muni bonds. Jay Powell said they were acting strictly under the authority granted to them by Congress. And he had a copy of the, he told me he had a copy of the Dodd-Frank Act on his desk as he was doing this, but there were many critics who said that the Fed was sort of unilaterally expanding its authority at that time.

So to your question, absolutely the Fed could buy that. There’s no question about it. One point I really would like to kind of emphasize is why am I so worked up about this? Or why is the subtitle of the book, How the Fed Broke the Economy? It really walks through the economic history of the 2010s, which was the era of 0% interest rate and quantitative easing. And I think there’s a very strong argument to be made that this was a pretty bad decade in the sense that you saw huge gains for people who owned assets and you saw huge, super heated financialization stock buybacks, leveraged buyouts, mergers and acquisitions, while wages were stagnant, while costs were rising pretty slowly. We didn’t see price inflation over that decade, but wages were stagnant, productivity growth was weak, overall economic growth was weak. And it was sort of this Funhouse mirror economy. That was not a good thing. So anyway, but like, could you define for me please qualitative easing, because I’ve never heard that term?

David Goldstein:

Well, that’s because I kind of made it up. Essentially creating money for specific purposes, instead of just broadly, we’re going to buy back treasuries from big banks or corporate bonds. It says, “Okay, Hey, housing authorities we’ll buy your munis at low interest rates for you to build a ton of housing, all that missing housing.” Or maybe to put solar panels onto people’s roofs, something which pays off. And you’re collateralizing against future rents or future income from these investments, but you’re directing it towards things that clearly we need to invest in. We need to invest in transit and housing and clean energy and schools, and so many other things that are real investments that pay off in the future and would more broadly benefit people than just going and raising asset prices.

Christopher Leonard:

Now I hear you, 100%. And I get it. And I’d love to talk about that. And then, well, shoot, I’m also tempted to talk about, there’s another structural reform people are talking about in that the Fed could create money in bank accounts instead of just the 24 reserve accounts, they call it a people’s quantitative easing. Fascinating idea, different structure to the Fed. But to your question, of course, you’re not the only person saying that, there’s a big movement to say, I mean, particularly in terms of climate change, one of the things I document in the book is how this binge of debt and quantitative easing really benefited the fracking industry. It pushed billions of dollars into corporate junk debt for frackers in North Dakota and Texas, just investments that don’t make any sense at all.

One of the real trends I talk about in the book is when you pull interest rates to zero and you pump money into Wall Street, you create this effect called the search for yield or the reach for yield. What they’re saying is like, you got to put the money somewhere, because you can’t make any money saving it. And so when some fracker comes into your hedge fund and has all these overly optimistic, wild projections about their wealth, you give them money because you got to invest somewhere. And so the Fed financed fracking. And so you’ve got a lot of people now saying, “Well, we should direct the Fed’s resources toward these socially beneficial areas like clean energy, like green energy.” I think in the case you brought up affordable housing. And that’s a great debate to have. I just want to be clear like, clearly I’ve got my points of view about the Fed, but the main thing I’m trying to do is just describe what happened over the last decade.

But I will say, a lot of this stuff has been and I think should be in the realm of fiscal authorities, meaning democratically controlled institutions like the White House and Congress. And we’re recording this on the anniversary of January 6th. I’m not blind to the massive dysfunction, potential collapse of democratic institutions in America, but those are the entities that can really affect things, like you’re talking about, invest in roads, bridges, infrastructures, school, clean energy. It should be the job of democratically controlled institutions, because again, the Fed had two simple jobs when it was founded, be the lender of last resort, create and manage our currency. Those are two major jobs. And they’re hard to do and the Fed has mostly done them really well during its existence. I wouldn’t want to have the alternative of no Fed. But to say that now the Fed has to become sort of the surrogate for congressional action and decide all these political decisions about where to put money, I don’t think that’s the Fed’s job. I think it’s the job of Congress.

David Goldstein:

Well, it doesn’t leave me hopeful-

Christopher Leonard:

Well, I know.

David Goldstein:

Yeah, that Congress will do these things. Nick, do you want to ask the final question?

Nick Hanauer:

Yeah, absolutely. Why do you do this work?

Christopher Leonard:

Oh my God. I mean, I love journalism so much. I guess I don’t know what’s wrong with me, but like, growing up my heroes were reporters and journalists and writers. So I just got to say like, that’s what got me into it. I have a deep love for the business, but the older I get, the more important I think this is. I do see my job as kind of creating a map for people, okay? I need to dig through a lot of boring data, do a lot of interviews, and try to explain and describe the systems of power in our country and how they work and how they operate, so that people who are very busy can read these things and just have a much clearer, better sharper understanding of the world.

I feel like I’m kind of like an intelligent analyst who works on behalf of your average reader and like that’s my job. And I just… I mean, A, I love it, and B, I think it’s so important. We obviously can’t have democracy without good journalism and I mean, so that’s why I do it. And hopefully my goal here, I really would love for readers to leave with a pretty good mechanical understanding of what the Fed is, how it affects our world and what it’s done over the last decade.

Nick Hanauer:

Well, thank you so much for being with us.

Christopher Leonard:

My pleasure.

Nick Hanauer:

We really appreciate it. And best of luck with the book.

Christopher Leonard:

Yeah, thank you. I really enjoyed it. Thanks for the time.

Nick Hanauer:

You bet.

David Goldstein:

Thank you. So Nick, Federal Reserve, good, bad evil, indifferent?

Nick Hanauer:

Yeah. I am of two minds. It’s interesting because I definitely agree with Chris that the policies enacted by the Federal Reserve over last 10 years have exaggerated and increased economic inequality in the country. It seems unambiguously true, just a fact, and that’s a bad thing. And equally though, given the dysfunction in Congress and their inability to directly address economic inequality and the issues that most American working people face, and given the challenges that the economy has faced from the global financial crisis of 2007 and 2008 to today, I wonder if I had been in charge of the Federal Reserve if I would’ve done something differently. I don’t know. I mean, if I could have dreamed up away to have done what you talked about, which was qualitative easing instead of quantitative easing, perhaps a different person would’ve done that or been more aggressive, but I think he posed the very important question, which is the counterfactual question, which is if they had done nothing, would we be better off or worse off today than we are? And I don’t know.

David Goldstein:

Well, we do have an example we didn’t talk about, and that was Europe. The European Central Bank did nothing initially because it was not in their purview to do this sort of thing. And the Euro almost collapsed. It almost completely fell apart until they, some would say, acted outside of their purview and started buying assets, started doing their own version of QE. And during that time, the European economies, their economic recovery lagged well behind than in the U.S. So we did have a difference in difference experiment going on. And we had a very slow recovery with very slow job growth and almost no wage growth for almost a decade, but it was better than Europe-

Nick Hanauer:

Yeah. In many ways. Yeah.

David Goldstein:

So there’s that. What I will say, there’s the old cliche, Nick, when all you have is a hammer, everything looks like a nail. Yeah. And the Fed has a hammer, but the truth is, absent a screwdriver, you can use a hammer to drive a screw into a wall.

Nick Hanauer:

Yes you can. It’s not pretty.

David Goldstein:

Right. It’s messy, but you can get the screw in there and-

Nick Hanauer:

It may fall out quickly, but it goes in.

David Goldstein:

So in a sense, that’s what the Fed did. They hammered a screw into the wall because they don’t have screw drivers there. And I think it’s important to note that, and Christopher points this out, that they were experimenting. QE was… It was a 10 year experiment, but they were experimenting. And there was a lesson to learn from it. And I think during the pandemic, Congress learned that lesson, Congress did act. Congress did spend a shit ton of money into the economy. And the Fed acted too. The Fed, like initially, very quickly as the markets were collapsing, the Fed did a lot of QE early in the pandemic, but they did more than just buy treasuries and corporate assets. They did spend billions more on municipal bonds to keep the municipal bond market from collapsing because tax revenue, local tax revenue was collapsing at the same time. And if you had the municipal bond market crash at the same time that local tax revenues were collapsing, you were going to bankrupt local governments.

And so the Fed did direct its actions a little more during the COVID crisis than they had after the 2008 financial collapse. So they experimented. A lot of it probably failed and shouldn’t have been done, but if they treated it like an experiment, maybe they’ll do it a little more efficiently next time.

Nick Hanauer:

Yep. Well, we’ll see.

David Goldstein:

And remember Christopher’s book, The Lords of Easy Money: How the Federal Reserve Broke the American Economy is out today. Buy it, read it, or in my case, listen to it. I think you’ll enjoy it. Learn how the Federal Reserve actually works, and in some cases doesn’t work.

Nick Hanauer:

And in the next episode of Pitchfork Economics, we get to talk to our old friend, Saru Jayaraman about One Fair Wage: Ending the Subminimum Wage for Tipped Workers.

Speaker 4:

Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook @CivicAction and NickHanauer. Follow our writing on Medium @CivicSkunkWorks and peek behind the podcast scenes on Instagram @PitchforkEconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.