Tag: Employment

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

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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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How Inequality Stymies Monetary Policy and What to Do About It

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By Karen Petrou

  • In a dangerous double-whammy, monetary policy not only makes America even less economically equal, but economic inequality also frustrates monetary-policy transmission.
  • Thus, recessions are deeper and longer, reversing the good-times income gains central banks take as proof that their policies are not dis-equalizing even as the wealth divide grows ever wider.
  • Because monetary policy when rightly judged in terms of both income and wealth adversely affects economic equality and inequality stymies monetary policy, we won’t have macroeconomic-effective monetary policy until we have equality-focused monetary policy.
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Big Fed or BigTech? The Force Behind U.S. Inequality

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By Karen Petrou

  • An influential new Fed staff study asserts that increased market power is to blame for much of U.S. income inequality over the past forty years, discounting monetary policy’s impact after 2008 by looking only at inflation, not also at QE and ultra-low rates. 
  • Incorporating these factors into its construct and reviewing other research suggests a large causal role also for post-crisis monetary policy.
  • Which is worse is yet to be told, but it seems clear that market concentration, monetary policy-fueled asset-valuation hikes, and ultra-low rates exacerbate the structural factors on which the Fed continues to blame economic inequality.  Indeed, concentration and post-crisis policy are likely to be considerably more causal than the prolonged decline in educational quality, demographic shifts, increased innovation, and perhaps even regressive fiscal policy.
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Why a Racial-Equity Mandate Isn’t Enough: Action for Inclusive Financial Policy

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By Karen Petrou

  • The lack of racial equity in U.S. monetary and regulatory policy is only part of the problem.  Inclusive policy must reach all groups – including persons with disabilities – now overlooked by the Fed and thus left behind by the U.S. economy.
  • The Fed’s monetary policy mandate in current law is already inclusive, but unmet and unenforced.  Fixing that by legislation may focus the Fed’s attention with better data, but data aren’t enough.
  • Inclusive financial policy effectively reaches all under-served groups via equality-focused financial regulation and ground-up – not trickle-down monetary policy.  The Fed is already a fiscal agent via its huge asset purchases, but this is the opposite of inclusive policy due to its direct and unequal wealth impact.  Inclusive policy realigns monetary and regulatory accountability, but does not replace it with a still greater fiscal presence.
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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.
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