Quantitative Easing as a Means of Reducing Unemployment: A New Version of Trickle-Down Economics

Abstract

Quantitative easing represents a variation of trickle-down economics. The presumption is that asset purchases by the Federal Reserve (Fed) benefit everyone. The policy involves increasing the prices of treasury bonds and mortgage-backed assets to stimulate output and employment. Quantitative easing acts on balance sheets. It works through the price system by affecting the structure of prices, and hence wealth. The unemployed, lacking assets, are not directly affected by changes in asset prices. The unemployed are dependent on policies that generate income. While Fed intervention prevented a collapse in asset prices, its effect on the real economy remains tenuous. Data suggests that the policy has exacerbated the inequality in the distribution of wealth and income, has done little to reduce unemployment, and has violated the principles of social justice. The policy contrast sharply with fiscal policy employed during WWII, which promoted greater equality in the distribution of income.

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