I have just watched Frontline’s “The Power of the Fed” (PBS 13th July 2021) and witnessed interviews with a whole range of financial people, though no politicians, who one might expect to have clear opinions about the money they vote to spend. Here some thoughts.
- The Fed (US Federal Reserve, America’s central bank) has spent trillions of dollars, after 2008 (due to the mortgage lending collapse) and again in 2020 (due to the Covid-19 pandemic), on boosting the economy in ways that are utterly new.
- Its employees and advisors are evidently incapable of understanding or explaining the Fed’s policies in recent years which are, admittedly, very new.
- Some, often older, people inside or close to it, think the Fed is seriously wrong in the effects it is having. e.g. not helping ‘widget’ making (metal bashing) industries, not helping ordinary or low income people.
- Most commentators agree that, at present, it is impossible to find the price of a business; a corporation may look overburdened with debt and about to collapse – but suddenly its stock increases hugely in value due to Federal Reserve support.
- Commentators confine their analysis to within the United States. They ask ‘Is it good for America?’ But maybe the problem is broader than American markets or whether U.S. politicians can be regulate banking.
- With today’s connectedness, shouldn’t we be analyzing New York (‘Wall Street), and London (‘The City’) in the context of the banking needs of the entire World?
As a sociologist, what do I think of this? To me what is obviously missing is the phenomenon of youth. Young people are a whole cluster who are active in society. What is fascinating about this group is that they are simultaneously sociological and economic. Young people are capable of creating shared styles of consumption, so they must be active sociologically to be able to stamp things with their generational mark. At the same time, youth is important for its size and the variety of industries that dependent on its purchasing; these must keep up with youth’s changing demand for new styles and expression though objects. I like to call this combination ‘econo-sociology.’
What follows from this is that sociologists need to rethink youth as a phase of life and conceptualize how it collectively influences society. Economists need to change too. Their explanations of consumption and the economy should include demographics and the innovation that comes from the ‘invisibles’ needed by generations of youth. In my view, the problem of trying to understand ‘The Fed’ means understanding what today’s econo-sociology really is.
First, our economy and polity are not what they were a century ago when central banks and current textbooks about economics came into being. The old thinking saw economic activity as sales on Main Street/ High Street and business responding by making ‘widgets’ in metal bashing factories. And all this happened within one country. So its central bank, a political institution of one country, could control the economy by finding the right policies.
As the documentary, ‘The Power of the Fed,’ showed, old assumptions evidently no longer work. The economy is now international – consider exporters like China, sovereign funds, and global supply lines. Leading economies have earnings from ‘invisibles’ such as finance and banking, youth consumption, and knowledge services. All these require the hiring of talent, not just routine workers. All these show economy now combining itself with sociology. Consider how world-wide consumers of popular culture, smaller family size, parents investing in education and enriching experiences for youth all put new requirement on businesses. They must collect new information, organize talent in new ways, and discover new routes for delivering product. Together, these are enough to explain why prices no longer guide businesses, or the Fed to the right policies.
Current confusion among public policy experts indicates that we need a new social science, an econo-sociology, to show what an old institution like the Fed needs to do. Right now, due to a missing social science of what is actually happening in the world, nobody today can say what the Fed ought to be doing and why. It’s time for this to change!
