Tag: Middle Class

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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Inequality Rising

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By Karen Petrou

As the COVID crisis continues, some have speculated that wealth inequality will drop because it did in the 1400s during the Black Death.  However, this cure is not only of course considerably worse than the disease, but it’s also no cure.  Economic inequality is a cumulative process – the worse off you are, the worse off you get unless something positive reverses this compound effect.  Conversely, the better off, the still more comfortable unless something comes along to redistribute your gains, however well or ill gotten.  Given how unequal the U.S. was before COVID, it will surely get only more so now, especially if the Fed stays the course with trillions for financial markets and pennies for everyone else. Continue reading “Inequality Rising” →

The Family Financial Facility: Urgent, Overdue, Equitable Fed Support for Those Most in Need

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By Karen Petrou

As I write this, thousands of small businesses are clamoring for urgent SBA loans and so many Americans are filing for unemployment insurance that systems have crumpled across the country.  At the same time, the S&P rose over three percent since Monday’s open.  The reason for this dissonance lies in the fact that key parts of the financial market have been bailed out while ordinary borrowers are stuck and then some.  Saving markets won’t salvage the economy – at its root, the U.S. is a consumption-driven economy.  If consumers can’t survive, neither will the economy.  The Fed must add a Family Financial Facility to all those it has crafted for the financial market and it should open one fast.  In this crisis, time is truly money and money is what most families don’t have.

Continue reading “The Family Financial Facility: Urgent, Overdue, Equitable Fed Support for Those Most in Need” →

American Millennials: The Generation the Recovery Left Behind

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By Karen Petrou

In our last blog post, we chronicled the continuing demise of the American middle class.  Now, we turn to the equality disaster evident in the most recent U.S. demographics.  A new General Accountability Office (GAO) study confirms that millennials (those aged 18-37) are rapidly losing any chance of doing better than their parents and trends are extraordinarily inauspicious for NextGen followers.  Inter-generational economic mobility was once as much a hallmark of America as its robust middle class – in 1970, 92 percent of 30-year-olds made more money in inflation-adjusted terms than their parents did at similar ages even though the 1970 economy was considerably weaker than the prewar boom.  Now, millennials are far, far behind their parents.  Looking at wealth share,* baby-boomers owned 21 percent of U.S. net wealth when they turned 35 (1990 on average). Continue reading “American Millennials: The Generation the Recovery Left Behind” →

Dark Corners in “Good Places”

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By Karen Petrou and Matthew Shaw

Shortly before Thanksgiving, a new study documented that U.S. life expectancy since 2010 has taken a sharp turn for the worse for younger Americans regardless of race, gender, or education.  We knew that opioids were devastating, but this study confirmed others showing also that the overall reversal in U.S. life expectancy is due to more profound and mysterious afflictions.  Doctors are flummoxed by why U.S. mortality is so much higher than that in other advanced countries, where life expectancy continues to increase for younger citizens, concluding that something endemic is going on behind the epidemic of “diseases of despair.”  The latest inequality data demonstrate yet again that the economic “good place”  that comforts Fed policy-makers is to be found only in the 100th floor penthouses that are the eyries of the one percent.  We thought the data more than dispiriting when we analyzed the Fed’s first distributional financial account; now, we find them devastating, not to mention evil omens of a polarized, angry electorate heading to the 2020 polls. Continue reading “Dark Corners in “Good Places”” →