How the Other Half Goes Broke

By Karen Shaw Petrou and Matthew Shaw

In our last blog post, we laid out the most telling inequality-data points from an important new study from the Federal Reserve Bank of Minneapolis which for the first time runs from 1949 to 2016 and adds many critical equality measures.  These data show more decisively than ever not only that wealth inequality in 2016 is the worst since at least the Second World War, but also that this is due to who holds the assets that have gained the most.  Since which assets return how much is due now in large part to post-crisis monetary and regulatory policy rather than to market forces and broader macroeconomic trends, it’s post-crisis policy – not forces from beyond – that increasingly dictates U.S. economic equality. Continue reading “How the Other Half Goes Broke”

It’s Worse Than You Thought

By Karen Shaw Petrou and Matthew Shaw

Janet Yellen, Ben Bernanke, and Jerome Powell have each bemoaned U.S. economic inequality and then asserted that it’s everyone else’s fault.  On the blog and in our speeches, we counter that post-crisis monetary and regulatory policy had an unintended but nonetheless dramatic and destructive impact on the income and wealth divides.  In doing so, we often point to just how much worse and how much faster inequality became as post-crisis policy took hold.  Demographics, technology, and trade policy didn’t change anywhere near that much that fast.  Now, a new study from the Federal Reserve Bank of Minneapolis takes the story forward with a trove of data evaluating U.S. economic inequality from 1949 through 2016.  For all the recovery and employment the Fed cites in its equality defense, these data tell a far different tale.   Continue reading “It’s Worse Than You Thought”

Disquiet on the Home Front

By Karen Shaw Petrou and Basil N. Petrou

On June 20, FRB Chairman Powell said, “Nine years into an expansion that has sometimes proceeded slowly, the U.S. economy is performing very well.”  Although Mr. Powell noted low labor participation, puzzling inflation, and problematic wage growth, he said that all will come right as long as the Fed stays the course.  No mention was made of unprecedented U.S. income and wealth inequality or of a housing market serving mostly the oldest, wealthiest, and most coastal among us.  Too bad – inequality and the impediments to effective monetary-policy transmission it erects are among the most important reasons that the nine years Mr. Powell cites have seen the slowest recovery in decades in concert with new threats to financial stability. Continue reading “Disquiet on the Home Front”

One Small Step for Better Monetary-Policy Models

By Karen Shaw Petrou

When I spoke at the Federal Reserve Bank of New York on March 1, I pressed hard for less reliance on data that washes away growing U.S. economic-inequality gaps.  Happily, many at the talk readily concurred.  For those who disagree, take note: an amendment added on March 6 to a House Financial Services Committee budget statement for the first time demands that the Fed do better when it makes judgments about U.S. prosperity. Continue reading “One Small Step for Better Monetary-Policy Models”

The Mother of All Negative Feedback Loops: Economic Inequality, Political Polarization, and the 2018 Congress

By Karen Shaw Petrou

Does economic inequality lead to political polarization that then creates gridlock that increases economic inequality and turns negative feedback into M.C. Escher’s tessellated stairway to a political doom loop?

After the first full year of Donald Trump and a GOP-controlled Congress, it’s easy to conclude that we’re in the part of the cycle where inequality leads to polarization and then to gridlock broken only by anti-distributive policies and more acute polarization before gridlock sets in again.  Getting a really bad feeling, I turned to a review of academic literature on economic inequality and political polarization.  It generally confuses causality and correlation, but nonetheless shows that conventional wisdom is right:  all of these forces make this a particularly parlous political session with potentially dangerous consequences for long-term comity and even stability.  Put another way, 2018 will be way ugly. Continue reading “The Mother of All Negative Feedback Loops: Economic Inequality, Political Polarization, and the 2018 Congress”