CNBC comes to this realization this morning, as it notes:

The coronavirus pandemic has led to a new era of inflation inequality, economists warn, in which poor households bear the brunt of rising prices.  That’s because a bigger portion of their budget goes toward categories that have spiked in cost. Food is up 6.4% over the past year, for example, while gasoline jumped a whopping 58%. And now many people are facing those higher prices as federal stimulus programs fade away.  

Now the attempt to blame the coronavirus as leading to this result is not surprising–we would never, ever want to identify the real driving cause of inflation–the excessive fiscal and monetary policies of our federal government. The cause of our inflation is the same as what is causing the Turkish Lira to crash and devastate that economy with higher inflation–bad economic policies. But of course inflation always hurts poor people and those that are on fixed incomes more for the obvious reason CNBC states–a higher percentage of their budget is necessary spending each month. And the winners of inflation are always those that get the money first–those who received all the stimulus dollars and additional money creation prior to the prices spiking. They get to buy at the old lower prices and it’s the poor schmuck at the end of the line that finds his dollar just doesn’t go as far.

This leads to the obvious question, what do you do about it? We just finished a series of posts on inflation this fall, so no need to rehash that. But interestingly, inflation (and its perfectly predictable effects) is now getting more play–it’s hard to ignore when that’s the number one concern of shoppers everywhere. In Politico yesterday, they reviewed the warnings of former Fed governor Thomas Hoenig about the consequences of the last decade’s experiment with easy money. Mr. Hoenig was the lone voice in the wilderness in the aftermath of the financial crisis, resisting Mr. Bernanke’s foolish venture into the unknown of massive central bank balance sheet expansion, a.k.a., quantitative easing, repeatedly being the only negative vote on the Federal Open Market Committee (FOMC) to monetary expansion.

Hoenig lost his fight. Throughout 2010, the FOMC votes were routinely 11 against one, with Hoenig being the one. He retired from the Fed in late 2011, and after that, a reputation hardened around Hoenig as the man who got it wrong. He is remembered as something like a cranky Old Testament prophet who warned incessantly, and incorrectly, about one thing: the threat of coming inflation.

But this version of history isn’t true. While Hoenig was concerned about inflation, that isn’t what solely what drove him to lodge his string of dissents. The historical record shows that Hoenig was worried primarily that the Fed was taking a risky path that would deepen income inequality, stoke dangerous asset bubbles and enrich the biggest banks over everyone else. He also warned that it would suck the Fed into a money-printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system.

This is an excellent article, you should read it all. My only criticism is the failure to identify why Mr. Bernanke went down the path that we find ourselves in today–his desire to take the bad mortgage assets off the balance sheets of the big banks so that the banking system would be unclogged and able to make loans again. Mr. Bernanke was painfully aware of the Japanese experience when their bubble collapsed in 1988, and the subsequent two decades of anemic growth due to “zombie” banks. He wanted to ensure that it wouldn’t happen here, but no one dared mention a bailout of big banks. Mr. Hoenig likewise doesn’t mention it, yet it is the only plausible explanation of Fed behavior post the financial crisis.

So given that managing the inflationary consequences and the critical question of what we should do now, what do you think the Biden administration’s most important concern is about monetary policy? You unfortunately guessed it–the Biden administration is looking to nominate former Fed Governor Sarah Raskin to be the Fed’s Chief banking regulator. Not only is she dead wrong on the cause of the financial crisis*, but her concerns today are not the inflation we’ve created, nor are they about the economic imbalances that have been created by a decade of failed polices. Instead Mrs. Bloom is concerned about

Since leaving the government, Ms. Raskin has spoken out on the need for the Fed and other federal financial regulators to more proactively address growing threats from climate-related events such as natural disasters and wildfires.

“There is opportunity in pre-emptive, early and bold actions by federal economic policy makers looking to avoid catastrophe,” Ms. Raskin wrote in the foreword of a report last year from the Ceres Accelerator for Sustainable Markets, a climate advocacy group.

Never fear, while Mrs. Bloom doesn’t seem to greatly be concerned about the inflationary issues that are concerning most Americans, she is concerned about the things that concern Elizabeth Warren, since Mrs. Bloom is one of two that Ms. Warren can accept.

Mr. Biden is also making sure that his other two Fed picks fit the progressive vision of external diversity (e.g., skin color or sex):

The potential nominations of Ms. Cook and Mr. Jefferson, who are both Black, would help Mr. Biden achieve his promise to improve diversity atop the central bank, which in its 108-year history has had only three Black board members, all of them men. 

Now I’m all in favor of diversity, but that ought to be coupled with a diversity of thought about sound monetary policy. There is not a single voice on the Fed in favor of sound policy, and the one Trump nominee who would’ve brought that perspective was rejected by the Senate (Senator Romney and Susan Collins helped sink her nomination–so it’s not just Democrats who aren’t in favor of sound money).

As is so often the case, the problem isn’t what people don’t know, it’s what they know that ain’t so.

* Mrs. Bloom, “In a speech in September 2009, Ms. Raskin blamed the financial crisis on “a deregulatory fervor that marginalized the interests of many” and said the downturn had been “brought upon us through a combination of greed, weak regulation and weak enforcement.” To be fair, pretty much every Democrat had to sing this song since the alternative explanation is that the Federal Government’s monetary and fiscal policy were to blame (i.e., easy money combined with congressional pressure to expand home mortgages to borrowers with little ability to pay back), and that is not something that the party of government will ever acknowledge.