Less Than Zero: Finance, Monetary Policy, and the Federal Reserve
The 2008 financial crisis brought to light the dangers of credit creation happening outside of the regulated banking sector—so-called “shadow banking.” In response to the breakdown of liquidity in financial markets, and more recently in the wake of the Covid-19 pandemic, central banks around the world have come to adopt “unconventional” forms of monetary policy to support the economy. In the U.S. specifically, the interventions of the Federal Reserve have been unprecedented, with large-scale purchases of debt securities through multiple rounds of quantitative easing, injecting newly created money into our financial system. For its proponents, such radical intervention is justified because standard monetary policy instruments have become ineffective, with interest rates approaching zero. Yet it seems that the pandemic only accelerated pre-existing trends, as interest rates have long been in decline. What does it mean to be living in a world where interest rates (at least adjusted for inflation) are permanently at or even below zero? While many celebrate the Fed’s expansion of its toolkit to stabilize financial markets and support the flow of credit in the economy, critics point out that the Fed’s policies may actually be worsening economic inequality and introducing potential sources of macroeconomic instability (such as inflation and currency devaluation). How can we understand the functions and responsibilities of central banks in the economy? Why is Fed policy now one of massive and sustained intervention, and what does it tell us about the state of the U.S. and global economy?
In this course, we’ll aim to understand the historical emergence and theoretical, legal and even ideological underpinnings of central banking. We’ll consider institutional arrangements and the design of various international monetary systems, as well as modern challenges to central bank governance. What are the objectives of monetary policy—and are they changing over time? What role have central banks played in shaping capitalism? How does our understanding of money (as commodity, credit, or a creature of the law) influence the answer to these questions? In this course, we’ll aim to understand the historical emergence and theoretical, legal and even ideological underpinnings of central banking. As we go, we’ll consider institutional arrangements and the design of various international monetary systems, as well as modern challenges to central bank governance. The course will survey different schools of thought in economics (Keynesian, post-Keynesian, Austrian, monetarist, Modern Monetary Theory) and draw from the recent work of scholars such as Christine Desan, Perry Mehrling, Richard Werner, and Karen Petrou, as well as research published by the Fed and the Bank of England.
Course ScheduleWednesday, 6:30-9:30pm ET
July 14 — August 04, 2021