Fiscal Policy’s Futile Equality Expectation on Its Own

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.  

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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”

Bad Things about the Good Place and How to Pretty It Back Up

By Karen Petrou

  • Pre-COVID inequality evidenced itself instantly in post-COVID consumer-finance extremis.
  • A unique construct of ground-up recovery policies is an essential, urgent response.
  • Regulatory revisions would help and long-overdue equitable liquidity facilities would do still more.
  • New public guarantees are critical.

Ever since the U.S. economy crept out of recession, the Fed has represented its slow, inequitable recovery as a “good place.”  Its own 2018 economic well-being survey contradicted this and the latest data released on May 14 are no better before COVID came and a lot worse thereafter.  These data make it still more clear that the Fed must quickly reorient its trickle-down rescues to move money starting at ground level, but even that won’t be sufficient given the magnitude of COVID’s economic impact.  The combination of macroeconomic harm and financial-system hurt also requires a reset in which new public guarantees for prudent private financing fully recognized by new rules play a major part. Continue reading “Bad Things about the Good Place and How to Pretty It Back Up”

Why We Need Baby Warbucks: Equities as a Pathway to Equality

By Karen Petrou

There is an extensive literature on the “unbanked.”  But what of those one might call the “unsecured?”  In previous blog posts, we have pondered “equality banking” and “equality insurance.”  Now, we turn to equality investing, doing so not just because savings at ultra-low interest rates has become the road to ruin, but also because several retail brokers have redesigned entry-level investing with considerable equality upside.  Although caution is always warranted when products are aimed at inexperienced investors, “fractional share” options and no-commission fees could make a meaningful difference for millennial and lower-income households hoping to have enough put aside over time to own a home, ensure a secure retirement, and protect their families from the unexpected. Continue reading “Why We Need Baby Warbucks: Equities as a Pathway to Equality”

“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”