Failed Keynesian Kraft Explains Rising Inequality

When John B. Taylor from Stanford University wrote that the source for Americas income inequality remains weak growth, I found solace in at least acknowledging that some economists haven’t fallen for the mythic achievement that animates the convictions of progressive politics.  The truth is far uglier than what most politicos can face.  We’re in  deflation.  We’re not getting out of this without confronting the philosophy of the dominant majority; that isn’t going to happen.

Dr. Taylor is responsible for creation of the ‘Taylor Rule’ in applied macroeconomics.  It remains a cornerstone in contemporary economic literature pertaining to rules based monetary regimes.  The Taylor ‘Rule’ states that the Federal Reserve interest rate should be informed from both GDP & the “out-put gap”.  Anchoring interest rates in empirical relations is sound policy.  John B. Taylor did it under Reagan and brought us a 25 year economic boom.

Team Obama’s mantra of building America from ‘the middle out’ is pure mythology, for it cannot be reconciled with the empirical achievement that was Monetarism under Reagan.

The 80’s/90’s saw declining trends in unemployment, less frequent recessions, lower inflation, sound money and wage growth;  all disproportionately benefiting middle and lower incomes.  According to team Obama, contemporary rising inequality is sourced in wider distribution/dispersion of income tied to deregulation and fewer targeted federal programs.


This is very skewed thinking.  Team Obama continues to believe that rising inequality is sourced from lower consumption demand.  (Think that one over.)

In fact, this skewed thinking cannot account for our current weak/non-existent growth currently pegged at 1.6% GDP with about 8% inflation.  (That’s right folks, we’ve been in negative territory for decades.)  Nevertheless. . .

Team Obama’s skewed view of the origin of income inequality cannot account for today’s high unemployment rates, inflation, collapse of median household incomes ALL CONTRIBUTING TO THE FALLING OF BOTH SOCIAL MOBILITY & OPPORTUNITY, the twin achievements that have underwritten American Civilization.

According to John Taylor, the real source for rising income inequality is discovered in the  fiscal impact of a sound education.  In a word:  diploma’s.  The wage premiums that come with a college education are enormous, those that cannot or will not finish college are bound to sit-out partaking in wage premiums.

As John Taylor wrote “the supply of educated students did not respond to the increase in returns.  With little supply response, the returns to those with diploma’s rose faster than those without.”  Dr. Taylor continued to excoriate how the American education system remained untouched by the policy achievement that underwrote Monetarism; greater economic freedom, the chief characteristic of the Reagan Revolution, never struck the monolithic institutions that house tenured radicals.

Let’s get started!

About William Holland

Systematic Theologian/International Relations
This entry was posted in Economics and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s