There’s a certain strand of thought that never finds a new idea persuasive unless someone can offer a detailed explanation of how it is that the rich and powerful benefit from not adopting the idea. The underlying thought is that problems all exist because of corruption and malign influence rather than from bad ideas or poorly designed institutions. This, I think, is one reason why I’m frequently greeted with emails asking me to lay out how it is that nefarious major banking interests benefit from Federal Reserve lassitude and would lose out if we had an aggressive policy of reflation.
Yet, as Brad DeLong observes owners of bank stocks have done terribly throughout the Lesser Depression. In some ways a bank is necessarily going to be one of the main victims of a failure to reflate. The whole idea of sophisticated management of a loan portfolio, after all, is that by aggregating risks you can avoid pinning your fortunes to the vicissitudes of one guy’s life and possible bad luck or poor judgment. Instead, you’re pinned to the mast of overall economic aggregates. But when policy makers fail to park the broad aggregates where you were expecting, everything goes awry.
It’s true that if reflation were a zero-sum enterprise it would be a transfer from creditors to debtors. But it’s not a zero-sum enterprise, so it’s not really a “transfer” from anyone to anyone. The interest group politics are relevant, but not really decisive. Like Keynes said, ideas actually matter. As do hazy ideological associations. One thing I’ve heard, for example, is that the government shouldn’t reflate the economy with helicopter drops because then voters and politicians may get the idea that you can always boost growth by printing money. To me that’s like saying you shouldn’t step on the gas when the traffic light turns green because you might forget to slow down seven blocks later when the light turns red. But people have what they think of as tried-and-true non-context-dependent ideas for economic betterment and they’re much more comfortable pushing those eternal verities.