The Fed’s “Sick Design”: How Post-2008 Policy Supercharged the Cantillon Effect
Despite recent years of high inflation, most economists still don’t appreciate the sinister and destructive effect inflation has on the economy, even in small amounts.
TL;DR
- Most economists underestimate the destructive effects of inflation, even in small amounts.
- Modern central banking policies, especially after 2008 and 2020, have created perverse incentives.
- The Cantillon effect explains how new money disproportionately benefits early recipients, leading to wealth concentration.
- Changes in reserve requirements and liquidity rules favor lending to non-depository financial institutions (NDFIs) over small businesses and consumers.
- This system inflates asset prices like stocks and real estate before wages and consumer prices rise, effectively taxing ordinary households.
- The current monetary expansion systematically rewards leveraged asset owners, contrasting with the stagnation of small business and consumer credit.