‘Cancer Cure May Increase Inequality’

Mickey Kaus Columnist
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Is It Good for the Gini? Atlantic‘s Daniel Indiviglio analyzes the Fed’s “twist” policy, which aims to lower longer-term interest rates. He notes some possible effects:

First, we will very likely see a boom in mortgage refinancing: many Americans will want to take advantage of those once-in-a-lifetime mortgage interest rates to cut their monthly payments.

Second, home sales could rise. These extremely low mortgage interest rates could lure more Americans to purchase a house.

Sounds good. But there is a terrible price to pay:

What do we know about those Americans who are able to refinance at this time? They’re doing relatively well. Their home isn’t underwater, and they have pretty good credit. While this doesn’t precisely describe the rich, it does describe the relatively affluent. …

In a sense, this action will widen income inequality. Think about what’s happening here. Mortgage interest rates spur refinancing. Those who take advantage will obtain smaller mortgage payments, which will boost their after-housing disposable incomes. Meanwhile, those who are unable to benefit from the low interest rates will have the same after-housing disposable incomes as before.

So we’re now judging every little policy by whether it marginally increases or decreases money inequality? Even if it does this by benefitting homeowners while leaving non-beneficiaries with the “same … incomes as before”? If we found a cure for cancer but it increased the Gini coefficient, would today’s liberals be for it?

To be sure: In a final to-be-sure paragraph, Indiviglio grudgingly concedes that the “Fed’s action may still be a good idea, if it does manage to have a significant trickle down benefit on employment.” But he is troubled that ” it will certainly make the relatively affluent better-off,” while the benefit to lower income deciles is less certain. His post is titled “Fed’s Twist May Increase Inequality.”

Mickey Kaus