An Open Letter to Janet Yellen Pt.I

An Open Letter to Janet Yellen Pt.I
Profile photo of Xiaolin Zhong


Dear Chairwoman Yellen,

This is an open letter urging you to stop money printing immediately. It has created worse economic inequality and tremendously hindered the economic recovery from the longest recession in history.

You have said that you are extremely concerned about economic inequality. Yet, through money printing, you are the greatest contributor to it. Such inequality can easily be seen in the two consequences of money printing: skyrocketing prices of most important necessity items, such as gas and food on the one hand, and that of commodities and assets on the other. The skyrocketing prices of food and gas have ripped off a great chunk of income of main street people, and that of commodity and assets have brought a dramatic fortune to assets holders and financial speculators, the Wall Street “fat cats” being the greatest beneficiaries. Consequently, the former get much poorer and the latter get much richer. Unlike the fair and beneficial economic inequality due to different efforts resulting in individualized maximum utility, the net of the utility of income and the disutility of cost of income (i.e., the sacrifice of leisure time), this inequality has nothing to do with efforts. The Wall Street “fat cats” have been making tons of money effortlessly, while the Main Street people have been struggling just to make end meets and this is something beyond their reach, no matter how hard they work. This sort of inequality is a recipe for social turbulence and therefore the worst kind. I have tremendous sympathy on those who have been protesting their employers, demanding pay raise. They are not seeking higher income. They are just trying to keep their income from falling. Such protest and demand, however, has been made to the wrong persons. The right person is you.

It seems very difficult for you to appreciate the pain the skyrocketing prices of gas and food have caused to working people. With your wealth, you hardly feel a thing from increased spending on those items. In spite of this, however, you should be able to imagine what such increases mean for those who had had to spend half or more of their income on daily necessities even before it occurred. If your imagination is still not good enough, then you should probably consider trying to make a living just like Main Street people.

Why don´t business employers just increase employees’ wages, you may wonder. Well, they cannot. You know very well that they will if they can. Happier workers are more productive. Employers cannot do that because the increase in commodity prices has been seriously hurting costs. It is already exceedingly tough for them to keep appropriate profits, let along raising wages. Even elite economists such as you understand that there could be no business without profits. If wages increase, business employers will have only two choices: either boosting automation or simply going out of business. Needless to point out that neither case helps improve employment.

Why don´t businesses increase prices to maintain profits, you may wonder. Well, the answer is the same: They cannot. Most consumer goods and services are price-sensitive. Most price increases therefore hinder demand, which has been already extraordinarily low due to reduced income of working people. The frequent deep holiday discounts have demonstrated this clearly. Prices of gas and food can be increased because these items are somehow price-insensitive. Even this insensibility, however, is not unlimited. The prices of commodity and assets can be increased for money seeks safe harbour.

This hits the answer to your next question: why does the expansion of liquidity not cause prices to rise. The answer is that only higher demand results in higher prices. And there can be no demand without income. What is income? By definition, it comes from production. This is not from me. This is what all economics text books have been saying. While disagreeing with most of what economics text books teach, I accept this definition. Even if you do not believe in me, you should believe your elite economist colleagues.

What drives production? The pursuit of profits by businesses and the spending power by individuals (I do not think I need to explain the reason for such pursuits). Average cost declines as production increases, enabling businesses to drop prices in exchange for higher sales volume, resulting in higher profits. The supply-price-demand-supply circle operates like this: the increase in supply of certain goods, say, A, B and C, brings about the drop of their own prices and the increase in demand for them. It simultaneously increases the demand for other goods, say, D, E and F, and drives their prices up. This in turn stimulates the increase in supply of D, E and F, and causes their prices to drop. What will happen to A, B and C? The demand for them will increase and their prices will climb, encouraging more production. So on and so forth. As a result, total supply increases while prices either remain stable or drop gradually, provided the amount of money in circulation remains unchanged. There is no need to expand liquidity for money circulation speeds up as economic activities heat up (I suppose you are familiar with the famous equation: price x output = money in circulation x circulation velocity). Such a healthy operation naturally produces optimal interest rates and there is no such thing as lack of liquidity. Money printing can have no positive impact on the economy, for expanded liquidity has nothing to do with production, hence demand. You know very well that expanded liquidity has never been translated into business or consumer loans. Businesses will not borrow without demand. Consumers will not borrow without income. The only borrowers are financial speculators and those who have no intention to repay.


  • Brett Andrew Hyland
  • Lucas

    It's great to read articles trying to explain the world in what kind of disaster we are getting into.
    It will be a tough task to get people like Mrs. Yellen to (re)act because I'm afraid she will realise what is happening and won't (can not?) do anything.

  • Max Meister

    sounds like somebody wants to teach Yellen economy. I don't think that's really needed. I'm sure she knows all of this but she is put in this position to ignore these facts and serve the elites instead. She will never admitt you are right as long as she is the Chairwoman at the FED. Only unresigned and former FED officials use to make statements that put's in question the soundness of their own policy (f.ex. Greenspan). So i guess you'll have to wait a bit before your comments will be acknowlwdged.

    • MacGregor Ross

      "Only unresigned and former FED officials use to make statements that put's in question the soundness of their own policy (f.ex. Greenspan)."

      If only this were true. I have not heard a single ex-fed official question their policies, rather I have heard of a lot of blame shifting.

  • Dan

    First Bernanke and now Yellen…. and they have priced me out of the housing market. I live and work in NJ. Many here work in NYC and a large percentage of those work in the financial industry. Prices for homes have skyrocketed… most would call that inflation…and it's very difficult to tell my daughters why we can't afford a home.

Profile photo of Xiaolin Zhong

Xiaolin Zhong is a Masters student in Political Science at the University of Lethbridge. Xiaolin also holds a BA in Accounting and an MBA.

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