A study of the economic and political consequences of central bank policy

Principal Investigator: Desmond King

Finance has grown massively over the past few decades as a sector of the U.S. and Western European economies. As finance (and financial inaction) has grown, it has become increasingly connected with government and particularly central banks. The Capitalizing of Central Banks Project (CCBP) studies the development of central banks into increasingly autonomous and efficacious elements of the modern economies, their interventions in financial markets, the adaptations of finance, and the political consequences of central bank policy in such areas as income distribution and asset ownership.

The project is directed by Professor Lawrence Jacobs (Mondale Chair, Humphrey School of Public Affairs and Department of Political Science, University of Minnesota) and Professor Desmond King (Mellon Professor, Nuffield College, Oxford University). 

Project topics and outputs:

Fed Power is a hard-hitting critique of the Federal Reserve Bank's outsized role in American politics and life. Drawing on comparisons to central banks in other countries, it shows how the Fed brazenly benefited the one percent at the expense of Main Street businesses and families during the 2008 financial crisis — and with very little criticism from elites in government and the media. Fed Power concludes by outlining major reforms that the Fed needs if it is to establish a reputation for being impartial and accountable – and to be prepared to respond to the next financial crisis.

It is time to return the study of inequality in capitalist society to capital and its institutional guardian – central banks. This paper replaces the technocratic account of central banks and, specifically, the Federal Reserve Bank as a public good with a political economy analysis based on its structural dependence on finance. We examine the Fed’s two mechanisms for advantaging the super rich that are missing from accounts of inequality. The first was exposed by the Fed’s interventions in 2008-9 that selectively benefited the financial sector and specific firms within it – policies that directly contributed to rising income inequality. Second, the Fed’s conduct of monetary policy generates differential effects owing to the unique position of the super rich in capital markets owing to their control of assets, investor knowledge, and financial networks. We conclude by recasting the study of inequality to incorporate the distinctive features of central bank policy and capital markets.

The latest phase of CCBP focuses on interviewing American, British, and Canadian private bankers and hedge fund managers to identify how they respond to central bank interest rate adjustments and asset purchases.

Funded by: the Walter F and Joan Mondale Chair and the Nuffield College Mellon Trust Endowment

Project website