The perverse nature of expansionary monetary policies: The more they prevent income inequality from rising, the more they increase undeserved wealth inequality

The highly expansionary monetary policies conducted in OECD countries in response to the subprime crisis and then the COVID crisis have certainly prevented income inequality from rising, in particular by enabling governments to implement highly expansionary fiscal policies. But they have led to a very sharp rise in asset prices (equities, real estate) and therefore to an increase in wealth inequality. It is important to understand that this is the case even if the government implements helicopter money: even if the first recipient of the money creation is a poor household, ex post this money creation fuels asset purchases. Central banks clearly have no intention at present of exiting their very low (negative) real interest rate policies: asset prices will continue to rise and governments’ macroprudential policies will be powerless to stop them. We are therefore witnessing a vast, undeserved increase in wealth that is difficult to tax in the short term, since the capital gains are latent and most often unrealised.