When Politicians Tell Voters They’re Dining on Fine Fare But Voters are Eating Hot Dogs: How Bidenomics Exacerbates the President’s Political Problem

~ Karen Petrou ~ Leave a comment
  • Bidenomics is based on assertions that the economy is doing well thanks to the President, but most Americans believe it isn’t because the economy according to Biden is not the economy most Americans experience every day.
  • The aggregate unemployment level in which the President takes such pride doesn’t reflect real unemployment or – far more important – real wages.  The bottom 50% of U.S. households would have to earn $5,000 more today just to buy what they bought at the end of 2019 despite the wage gains in which the President and Fed take such pride.
  • Progress curbing inflation isn’t as the President portrays it because almost two-thirds of Americans are living paycheck to paycheck and skimping on or even skipping goods and services.  Only a quarter of middle-class households can now afford a home, down from fifty percent in 2019.
  • Effective political rhetoric recognizes reality.  The President must thus speak to policy changes, not past accomplishments, and make it clear he understands how hard most households have it.

For Mr. Biden to gain voter traction on economic policy, he’ll need to persuade the two out of three voters who disapprove of his economic record despite proclamations of progress each time job numbers go up and inflation seems to go down a bit.[1]  Bouncing GDP numbers haven’t and won’t suffice because GDP is a poor measure of prosperity across the distributional income and wealth curves.  Low unemployment numbers also aren’t persuasive because they come in part from the large number of people no longer in the market because wages are still so low.  Employment numbers are also buttressed by the millions of Americans holding down multiple jobs to make ends sort-of meet. 

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Equality Banking: A Roadmap

~ Karen Petrou ~ Leave a comment

By Karen Petrou

  • Economic inequality and ultra-low interest rates create a vicious cycle in which rates drive down savings, financial intermediation becomes less profitable, unequal households have still more difficulty preserving income and accumulating wealth, banks drop equality-essential services, consumers are made still more unequal, and it all starts all over again.
  • Breaking this cycle requires hard decisions about which retail-banking services genuinely enhance economic equality and quickly developing effective, measurable delivery channels to promote widespread adoption.
  • There is no shortage of commitments from high-level federal officials supporting equitable finance; what’s missing are specific, near-term action steps.
  • This post thus provides a step-by-step roadmap for quick public- and private-sector innovation, regulation, and inclusion. 

Almost a decade to the day after the “Occupy Wall Street” movement crystalized the populist politics that now characterizes U.S. debate, the Acting Comptroller of the Currency announced that his agency’s top priority is reducing inequality.  This echoes the Biden Administration’s emphasis on equality and racial equity, but all of these high-minded goals are more hortatory than clear directives.  They are thus unlikely to advance equitable banking, exacerbating not just economic inequality, but also America’s discontent and resulting disfunction. Reducing economic inequality is clearly essential, with banks and other financial companies sure to face mandates or even public-finance competitors if vital needs are not quickly and equitably met. 

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The Central-Bank Inequality Excuse and Why It’s No Exoneration

~ Karen Petrou ~ Leave a comment

By Karen Petrou

  • Although a new BIS report finally takes seriously the proposition that central banks may inadvertently increase economic inequality, it goes on to dismiss it because any inequality impact is said to be short-lived thanks to fiscal policy. 
  • However, neither short-lived inequality nor effective fiscal clean-up is substantiated by data in the U.S.
  • But, while the BIS at least acknowledges some inequality impact, the Federal Reserve is obdurate that it doesn’t make economic inequality even a little bit worse.  This means prolonged policy with still more profound anti-equality impact.

It is the purpose of this blog and my new book to show not just that monetary and regulatory policy may increase economic inequality, but also that the Fed’s policies since at least 2010 in fact did so.  This isn’t an academic exercise – it’s an effort to show as analytically as possible how monetary policy exacerbates inequality so monetary policy alters course before inequality’s systemic, political, and human cost grow still higher.  However, disciplined analytics that power up effective advocacy must be open to correction.  This blog post thus looks first at a new, if halting, acknowledgement of at least some inequality impact from the Bank for International Settlements and then the Fed’s still-stout denial that it has any responsibility for the growing U.S. wealth and income divide.

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Why Ultra-Low Rates Don’t Benefit Ultra-Strapped Consumers

~ Matthew Shaw ~ Leave a comment

By Matthew Shaw and Emma Palley

  • The more precarious a household’s financial standing, the more it must spend on basic financial services as a share of its income.
  • Minority households continue to face substantial disparities in access to and the cost of basic financial services, putting them also at greater risk due to reliance on unregulated entities.
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Fiscal Policy’s Futile Equality Expectation on Its Own

~ Karen Petrou ~ Leave a comment

By Karen Petrou

  • Distributional data show clearly that, fiscal stimulus notwithstanding, the U.S. was still more economically unequal in 2020.
  • Only fiscal policy once combined also with progressive financial policy will put the inequality engine into reverse.

As we have noted before, the Fed’s new Distributional Financial Accounts of the United States (DFA) is a definitive source of economic-equality data we hope the Fed will not just compile, but also use for policy-making purposes.  The latest edition of the DFA demonstrates yet again why distributional data are so compelling, showing now the profound challenge even unprecedented fiscal policy on its own faces slowing down the inexorable engine of inequality.  Still more fiscal stimulus in 2021 will boost absolute income and wealth numbers a bit at some benefit to low-, moderate-, and even middle-income households.  Still, the upward march of financial markets powered in large part by Fed policy inexorably widens the inequality gap.  No matter the “crust of bread and such” from fiscal programs, inequality still increases the slow pace of economic growth, the risk of financial crises, and the odds that the electorate will be even angrier in 2024 than 2020.  

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