Rules We Can Really Live By

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By Karen Petrou

  • Judging U.S. rulemaking by its benefits to the public good, not just by its impact on private wealth, is transformational and, with a new CBA methodology, also more than possible.
  • Equitable rules can be both effective and efficient.
  • Maximizing the public good is not synonymous with redistribution or reverse discrimination.

In 1993, President Bill Clinton issued Executive Order (EO) 12866, creating hurdles ahead of federal rules that are “economically significant.”  This was measured by a cost of $100 million or more.  On January 20, President Biden began a long-overdue rewrite, stipulating that federal rules are henceforth to be judged not just by their impact on private wealth, but also by what becomes of the public good.

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Of Money and Madness

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By Karen Petrou

  • In 1975, the rewards of national economic growth were evenly distributed regardless of income.  By 2018, most Americans lost their fair share based on per capita GDP.
  • The cost of lost income due to increased inequality to the bottom 90% over this period amounts to $2.5 trillion compared to what it would have been if GDP had remained as equitably distributed as it was before 1975.
  • Looked at another way, the majority of U.S. workers never shared in the economic growth from 1975 to 2018.
  • It may seem that racial disparities in U.S. income improved over this period, but this wasn’t the result of a society become more fair, if not also economically more equal.  In fact, racial disparity dropped not because Black male workers with below-median income held their own, but because white men did worse than before.  The same phenomenon erases what appears to be a drop in the gender gap for working women who did a bit better – largely due to more working hours – than men.
  • Fed policy premised on aggregates and averages as well as the benefits of GDP growth without regard to distributional realities is not only doomed to fail, but sure to continue to exacerbate inequality.
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Central Bankers Can Do More Than Just Care about Economic Inequality

~ Karen Petrou ~ 2 Comments

By Karen Petrou

  • New evidence reinforces monetary policy’s distributional impact.
  • Monetary policy can also be redesigned to ensure that its distributional impact enhances equality instead of – as now – making it worse.
  • More evidence also reinforces the link between unequal monetary policy and slow growth.
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Pick Your Poison: Abandoning Regulated Banking in Search of Financial Inclusion

~ Karen Petrou ~ 1 Comment

By Karen Petrou

  • Transaction and savings accounts are critical to financial security and inter-generational economic equality.
  • Nonbank offerings might increase financial inclusion, but pose risks to safeguarding savings, personal privacy, and consumer protection unless or until consumer-finance standards symmetrically apply to banks and nonbanks offering like-kind products to vulnerable households.
  • Public-utility, postal, or CBDC alternatives to bank accounts are a long way off and may not effectively safeguard high-risk households. 
  • Expanding low-cost, no-risk bank accounts is a critical near-term policy option.
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How Inequality, Not Polling, Predicted the 2020 Election

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By Karen Petrou

Perhaps nothing is as startling about the 2020 election as the bad calls pollsters made up to the minute votes were counted.  One might have thought all the mistakes that led to similar 2016 gaffes were corrected – pollsters certainly said so – but they weren’t and the reason why is sad, but simple.  The political-science models on which polling is premised are, like monetary-policy models and so much conventional wisdom, predicated on the vibrant U.S. middle class that once was but is no more.  As we showed early on the economic inequality blog, economic inequality breeds not just acute political polarization, but also a strongly right-leaning shift in voter sentiment.  No wonder – American voters denied the iconic promise of modest economic security and inter-generational mobility are angry.  The more they see prosperity enjoyed by only a few and often a progressive few at that, the angrier they get.  Add in COVID, and this is a witch’s brew of economic despair, social anger, political polarization, and national instability.

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