In the post immediately preceding this one, I observed that the twinned histories of American ambivalence toward centralized political governance on the one hand and central banking on the other place recent development in the realms of both pandemic response and American public finance into a helpful light. I then devoted the remainder of that post to broadly sketching the two histories just referenced. I now turn to the developments in pandemic response and public finance. Interpreted against their historical backdrop, I think, they tell us much about where American central banking will go – and probably indeed ought to go – next: namely, to a ‘better spread’ Fed.
Picking up where we left off, then, the Trump administration’s unwillingness to mobilize any national productive or mitigation response to the pandemic that might compare to our earlier Wilson and Roosevelt administrations’ responses to the First and Second World Wars has been widely discussed. Also now widely discussed is the dawning awareness that cities, states, and compacts of states are accordingly all we have left where collective address of those collective action challenges which are the national pandemic and its associated economic collapse are concerned. In effect, we have devolved back to a state of our union in which states and their subdivisions are our principal, if not sole, means of concerted national action. They are our new ‘administrative state,’ at least till we once again have a national executive that believes in both national administration and indeed even the national project.
It is against this backdrop – and as a response to the devolution just noted – that the Fed’s new Community and Small Business QE initiatives are best understood, particularly if we’re inclined toward ‘best lights’ or what I think of as ‘potential-optimizing’ styles of interpretation. As noted in introducing the present pair of posts, moreover, this backdrop does more than merely explain the emergence of new facilities. It also suggests what we still have to do if we wish to optimize them. I shall argue that this includes far more extensive distribution of the Federal Reserve System even than Community QE will occasion.