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.
Continue reading “Equality Banking: A Roadmap”
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.
Continue reading “The Central-Bank Inequality Excuse and Why It’s No Exoneration”
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.
Continue reading “Fiscal Policy’s Futile Equality Expectation on Its Own”
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.
Continue reading “Rules We Can Really Live By”