The Missing Middle Class

By Karen Petrou

When we started this blog in 2017, we began with a plea for the Federal Reserve to factor inequality into its monetary and regulatory policy equation.  We showed at the start, here, here and here, that the Fed’s focus only on averages and aggregates obscures sharp polarization at each end of the U.S. income and wealth distribution.  It is these polarizations, as we’ve repeatedly seen in blog posts that undermine the Fed’s ability to set the U.S. economy on a forward trajectory of shared prosperity and stable growth – i.e., to meet its dual mandate as Congress expressly defined it in the Humphrey-Hawkins Act of 1978.  The Fed is still resolutely crafting monetary policy with its eyes firmly averted from increasing inequality.  Continue reading “The Missing Middle Class”

The Low-Skill Losers

By Karen Petrou

As we have noted, here and here, the Fed is devoting increasing analytical – if not yet policy-maker – attention to the unequalizing impact of unconventional policy.  It’s a start – a major problem besetting central banks in countries without a robust middle class – i.e., the U.S. – is that old-school representative-agent thinking leads to unanticipated, unequal outcomes when wealth and income are disproportionately enjoyed by the very few, very rich.  It is for this reason that the Fed’s touted employment benefit and “robust” economy in the wake of post-crisis policy has done so little for so many who remain so angry.  A new Fed paper helps to show why. Continue reading “The Low-Skill Losers”

Big Tech, Big Macroeconomic Problems

By Karen Petrou

It’s easy enough to miss the macroeconomic and financial-sector impact of giant tech-platform companies in the swirl of concern about privacy, political integrity, concentration, and corporate governance.  However, big tech also has massive macroeconomic impact with far-reaching financial-system implications.  We explored safety-and-soundness implications in here and economic-equality impact in here.  Now comes a sweeping IMF study linking and even attributing structural economic transformation to these same big-tech behemoths.  Although inconclusive in critical respects, it’s worth a careful look. Continue reading “Big Tech, Big Macroeconomic Problems”

In Search of Optimal, Equal Monetary Policy

By Karen Petrou

The Fed is listening.  In a recent blog post, we analyzed a brand-new database which Fed staff have constructed to capture distributional wealth effects across the U.S. economy.  Now, we turn to a brand new paper from the president and staff of the Federal Reserve Bank of St. Louis that not only recognizes the distributional impact of monetary policy – a Fed first – but tries to do something about it.  The paper proposes an “optimal” monetary policy based on a complex model with several uncertain assumptions, no conclusion about whether it would work in concert with a still-huge Fed portfolio, and nothing more than a theoretical hypothesis.  Still, it’s a start. Continue reading “In Search of Optimal, Equal Monetary Policy”

Greenspan’s Market Put is Powell’s Inequality Short

By Karen Petrou

On Friday, March 22, the Federal Reserve finally conceded that aggregates and averages mask all-important economic facts, issuing for the first time the “Distributional Financial Accounts of the United States” (DFA).  This will be a quarterly staff assessment of U.S. wealth equality – or, as its data forcefully demonstrate, the lack thereof.  However, the DFA does something more:  it also tracks wealth inequality across the business-cycle over almost three decades, showing clearly that equity-price increases exacerbate wealth inequality.  As a result, the more the Fed strengthens the stock market by keeping rates low and its portfolio huge, the worse U.S. wealth inequality grows.  Continue reading “Greenspan’s Market Put is Powell’s Inequality Short”