Big Fed or BigTech? The Force Behind U.S. Inequality

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.
Continue reading “Big Fed or BigTech? The Force Behind U.S. Inequality”

Inequality Rising

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

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”

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

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”

“People’s QE” and Noblesse Oblige

By Karen Petrou

As the chimera of the post-crisis recovery fades and central bankers find themselves powerless to reverse recession, “people’s quantitative easing” is gaining attention as a tool a growing number of central bankers fancy gives them a new way to wreak their beneficent will.  People’s QE – also known more colorfully as “helicopter money” – means that, despairing of fiscal-policy remedies, central banks print money and then either just give it to the people or invest it in assets they or their bosses think best for equalizing, trade-deficit dropping, climate-restoring, or other all-to-the-good economic growth.  However, it’s not just central bankers casting longing eyes at the ability of central banks to print money – officials ranging from those in the Trump Administration to the Democratic Socialist candidate for President see it as a new way to do what they think are the voter’s bidding without raising the deficit.  This is really, really central banking, but for all its power, it’s very problematic.  QE so far has done little to spur sustained recovery and much to make the U.S. even more unequal.  There’s no reason to believe a people’s QE will be any better. Continue reading ““People’s QE” and Noblesse Oblige”