Matt Yglesias calls attention to Joe Gagnon's proposal for a relatively unorthodox monetary-policy intervention -- having central banks purchase massive amounts of debt in order to bring interest rates even lower than their current zero-bound to stimulate growth. Given Congress' inability to adopt more aggressive fiscal policies and the Fed's exhaustion of conventional monetary-policy approaches, this may be the right tool for the job -- and for jobs growth.
Discussing this idea with left-leaning friends, one major objection arose: Won't banks benefit from this policy given that some of their debt could be purchased and low-interest rates would benefit them as lenders? The answer is yes, and that is enough for some folks to condemn the whole plan.
That response strikes me, however, as a key problem in our debate over economic growth: Our desire to punish the banks can get in the way creating economic growth because anytime we do the things that create growth and jobs -- investment, lending, asset-building -- banks are going to benefit unless we do something far more radical than, well, changing the way banks do business that don't actually change the way they do business.
While the millions banks have made trading and lending off of low interest rates may be galling, jobs are far more important. In part, financial reform is about restoring a social contract between the rest of the economy and the financial sector to quell anger over bank profits: Reducing risk, speculation, and predation will align the banks' incentives with those of the rest of the country. In the meantime, though, we may need to accept that policy efforts to spur growth will likely give the banks a boost.
-- Tim Fernholz
