Generation Z needs to learn how our economy works. We are the ones who will need to contend with its future implications as we mature in an age defined by post-pandemic monetary policies.
Our money system is not real, to put it in the most absurd and alarmist terms. Monetary policy is carried out by an institution that isn’t fully run by the government, with a currency that has no tangible backing. The arbitrary nature of this is simultaneously fascinating and terrifying.
Any impulse to don a tinfoil hat is not completely unfounded. At its base level, it’s mind-boggling to think one of the most real and concrete aspects of our reality is unreal itself.
However, skepticism and conspiracy theories don’t have to collapse into each other. They’re often treated as if they always operate within the same continuum, but I like to think of them as a Venn diagram with overlaps.
We can face our fears and resolve our dissonances with understanding and education.
We need to address some of the shadows that lurk behind our concepts of money and economics and shine light on what is least understood and appreciated about our financial system, as well as address its pitfalls.
Take this as a cursory guide to monetary policy for dummies, with a healthy grain of salt.
As a journalism major whose last encounter with any degree of economic thought was when I barely passed AP Macroeconomics, I often find our economic system elusive and confusing at best, if not downright sinister at worst.
On its face, it is all of the above. Monetary policy and circulation are controlled by an institution not fully owned or operated by our government.
Joe Mahon, a regional outreach director at the Federal Reserve Bank of Minneapolis, said while the Federal Reserve is not technically a government institution, it was established by the government, and its employees are very much public servants.
“We conduct monetary policy with two goals in mind, and those are mandated by Congress,” Mahon said. “By act of Congress, we’re required to set monetary policy in order to try it and achieve maximum employment. The job market, the economy, is functioning, and the job market is keeping everybody able to be gainfully employed and price stability.”
We aren’t tied to the gold standard, so the United States, along with many other countries, operates off of fiat money, a government-issued currency with no physical commodity, like gold or silver, backing it. There is also no limit on the amount the government can create.
The Federal Reserve Bank conducts much of the government’s monetary policy, and while independent within the government, it’s still beholden to Congress.
Some say the Federal Reserve is unconstitutional, arguing that the only explicit mention of economic power in the Constitution is relegated to Congress exclusively. Some take healthy skepticism to the furthest extreme, scapegoating the reserve as the sole, purposeful cause of economic crises. That’s blatantly impossible and unproductive.
Tim Collins, a political science lecturer at the University of Minnesota, said government skepticism is healthy and necessary, as room for accountability is factored into a lot of the government’s mechanisms to allow for progress.
“People should always be skeptical of the government,” Collins said. “Usually, when government puts out information, a lot of it has to be open and transparent by law, with support for it or sources for it, so it’s good to be skeptical of government. You should always question it.”
Made popular over the past few years in response to news of economic shutdowns and resuscitations post-pandemic was the half-ironic query, “Why can’t we just print more money?”
It turns out there is no such thing as a dumb question. We’re existing in a somewhat unprecedented time in the history of our nation’s economy.
Mahon said in his view the COVID-19 pandemic caused the biggest shock to our economy since the Great Depression, and the key to stability was the Federal Reserve’s monetary policy actions.
“In particular were some of the sort of emergency lending facilities that were set up very quickly,” Mahon said. “And then what we call large-scale asset purchases, or sometimes in the financial process return, referred to as quantitative easing.”
Mahon said this easing refers to the reduction of the Federal Funds rate, the interest rate that banks charge each other, to zero.
“People sometimes refer to this as printing money, which is not inaccurate,” Mahon said. “It’s inaccurate in that we don’t literally print money like cash to buy these securities, but the defense does credit the financial institutions’ accounts that they’re buying those from, and that essentially puts a lot more money into circulation, it breaks down interest rates, and just basically makes monetary policy, makes the financial system more accommodative.”
The fact that money can be manipulated without a physical backing is both incredibly helpful and somewhat terrifying. However, despite what we might commonly think, a gold standard won’t save us and actually might lead us to be worse off.
Mahon said over the short term, the value of gold in particular oscillates a lot, causing instability in the short term that makes it incredibly difficult to operate a business, given the way inventory prices are essentially up in the air, leading many nations to make the tradeoff.
“You can look at the price of gold, see how much it swings around on a day-to-day basis. Well, if your dollar is tied to the value of gold, that means the value of the dollar swings around pretty wild, too.”
A complex economic system for a complex world. Is it completely ideal? Absolutely not.
We fear what we don’t understand, and to fear, we need to understand what we’re looking at.