Tag: Consumption

Of Money and Madness

~ Karen Petrou ~ Leave a comment

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.
Continue reading “Of Money and Madness” →

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.
Continue reading “Central Bankers Can Do More Than Just Care about Economic Inequality” →

If You Liked the Last Crisis ….

~ Karen Petrou ~ 8 Comments

By Karen Petrou

  • New data show that the COVID pandemic is creating even more income inequality than the great financial crisis, which is saying something.
  • Wealth inequality is already climbing to unprecedented heights due to Fed intervention and resulting market gains.
  • Absent fiscal policy that reduces income inequality and a change in financial policy benefiting wealth equality, post-pandemic inequality could be still more toxic, exacerbating longstanding challenges to macroeconomic growth and increasing financial-crisis risk.
Continue reading “If You Liked the Last Crisis ….” →

Wheelies on the Yield Curve:  Inequality, Disintermediation and the Hazards of New QE

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By Karen Petrou

Starting with our very first EconomicEquality blog post, we demonstrated the direct link between quantitative easing (QE) and the sharp rise in U.S. wealth inequality that differentiates this recovery from all that came before.  QE exacerbates inequality because, combined with post-crisis rules and ultra-low rates, it creates a market dynamic in which banks hold huge excess-reserve balances instead of making equality-essential loans and markets relentlessly chase yield, increasing equity valuations and driving credit to borrowers such as highly-leveraged companies.  In 2019, the Fed bulked up its portfolio in what is now known as QE-lite in hopes of rescuing the repo market, reinvigorating sputtering equity markets no matter the Fed’s ongoing insistence that this round of portfolio increases isn’t QE. Continue reading “Wheelies on the Yield Curve:  Inequality, Disintermediation and the Hazards of New QE” →

In Search of Optimal, Equal Monetary Policy

~ Karen Petrou ~ 2 Comments

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” →