"}Despite taking place in different contexts, the processes which \nallowed for the formation of deflationary coalitions exhibited some \ncommon features: governments empowered rentiers, gave some citizens \nnominal gains as consumers, ensured access to certain classes of growth \nassets for powerful constituencies, and repurposed the institutions of \n\u201cbig government capitalism\u201d to support financial deregulation. \nRedistributing gains away from workers, financial deregulation \nintegrated global economies in a manner that allowed states to pursue \ngrowth strategies benefiting an exclusive class of rentiers. This new \nclass supported deflationary policies long after inflation posed an \nimminent threat.
In the United States, financial deregulation and its attendant \ndeflationary political coalition were embedded in the politics of \nhousing. Housing policy has been integrated with welfare provision since\n the New Deal, when the Federal Government intervened in credit markets \nto create a thirty-year fixed mortgage and allow for widespread \nhomeownership. But as Greta Krippner has shown,\n the stability of this system depended on strict financial regulations \nthat limited the interest rates that banks could charge on deposits. The\n \u201csavings and loans\u201d bank industry was specifically dedicated to issuing\n government-backstopped, thirty-year fixed loans. The inflation of the \n1970s threatened this system of housing provision, as savers searching \nfor higher returns pulled their money out of savings and loans, and \ninvested it in new, unregulated products like Certificates of Deposit \n(CDs). Re-regulating these new instruments would carry a high political \ncost, but neglecting them would risk destroying the housing market.
In response, American policy makers reacted by deregulating lending \nwhile maintaining government protection for housing relative to other \nconsumer borrowing. Thus, housing became a special kind of asset that \ncould both be widely held and appreciate relative to other forms of \npersonal wealth. This avoided explicit \u201chard choices\u201d about distribution\n and the rationing of credit by offsetting the losses to wages which \nfollowed the Volcker shock. In practice, targeting inflation means that \nthe Federal Reserve and other central banks restrict credit at the point\n where labor markets begin to tighten. Until recently, central bankers \nassumed that inflation was at least in part triggered by an increase in \nemployment beyond the Non-Accelerating Inflation Rate of Unemployment \n(NAIRU). This means that as an economy moves to full employment and \nworkers can bargain for higher wages, central banks will restrict credit\n to engineer a pullback in the labor market.
As a result of these policies, a generation of homeowners found \nthemselves with an appreciating capital asset, insured by the \ngovernment, that could be used as a substitute for falling wages. New \nDeal housing policy was repurposed from the provision of long-term, \nstable shelter to a support for asset price inflation. This deal has \nbeen very good for a politically powerful cohort of homeowners who \npurchased their first house in the 1970s and 1980s. Coalitions of older \nhomeowners have defended\n low taxes on housing relative to other assets and economic activities, \nsuch as California\u2019s infamous Proposition 13\u2014itself a reaction to the \n1970s inflation. These same voters have made it impossible to build new \nhousing units in high demand areas, jacking up prices on real estate. \nHousing wealth has become\n increasingly held by the old, white, and wealthy, while cohorts born \nafter the 1970s have found housing a drag on their net worth. (Lisa \nAdkins and Martijn Konings argue\n that the political economy of the United States is now a machine for \nstealing the opportunity of the young to preserve the livelihoods of the\n elderly.) The deflationary coalition has been held together by a cohort\n of powerful voters whose financial position depends on the continual \nappreciation of capital assets at the expense of wages.