The Ethics of U.S. Monetary Policy in Response to the Financial Crisis of 2007-2009

Since the financial crisis first erupted in the summer of 2007, the US Federal Reserve has sought to contain negative spillovers into the real economy by dramatically loosening monetary policy. Initially, this was done by lowering its key lending rates, but as the crisis has worsened, and rates have approached closer to zero, it has resorted to expanding its balance sheet in a historically unprecedented fashion. The Fed’s total assets have more than doubled to nearly $2 trillion since the summer of 2007.Much of the debate surrounding the wisdom of this extraordinary increase in the production of money has revolved around its expediency–in other words, will it actually work to rescue the economy? Very little has been said, at least explicitly, about whether it is the morally right thing to do.This paper seeks to fill this gap by providing a moral analysis of the Fed’s response to the financial crisis. For this purpose, we apply Aristotelian virtue theory, Lockean natural rights philosophy, Kantian deontology, and Benthamite utilitarianism. The idea is that if a consensus, or a strong majority, can be reached from differing philosophic assumptions and starting points, then the resulting judgment ought to be compelling for all neutral observers. On the basis that the Fed’s efforts are likely to result in a marked rise in inflation, we argue that every one of these four moral theories ultimately renders a negative judgment. As such, we conclude that the Fed is pursuing an immoral course.