Tag: U.S. Households

How Inequality, Not Polling, Predicted the 2020 Election

~ Karen Petrou ~ Leave a comment

By Karen Petrou

Perhaps nothing is as startling about the 2020 election as the bad calls pollsters made up to the minute votes were counted.  One might have thought all the mistakes that led to similar 2016 gaffes were corrected – pollsters certainly said so – but they weren’t and the reason why is sad, but simple.  The political-science models on which polling is premised are, like monetary-policy models and so much conventional wisdom, predicated on the vibrant U.S. middle class that once was but is no more.  As we showed early on the economic inequality blog, economic inequality breeds not just acute political polarization, but also a strongly right-leaning shift in voter sentiment.  No wonder – American voters denied the iconic promise of modest economic security and inter-generational mobility are angry.  The more they see prosperity enjoyed by only a few and often a progressive few at that, the angrier they get.  Add in COVID, and this is a witch’s brew of economic despair, social anger, political polarization, and national instability.

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The Dollars That Make a Difference: Results of the New Survey of Consumer Finances

~ Matthew Shaw ~ Leave a comment

By Matthew Shaw and Karen Petrou

Every three years, the Federal Reserve releases a unique, illuminating data set, the Survey of Consumer Finances (SCF).  The most recent report covering 2016 to 2019 comes at a time of acute political risk for the U.S. central bank due to growing demands for a third, “racial-equity” mandate and heightened recognition of the inequality impact of post-crisis monetary policy.  Perhaps for this reason, the Fed’s qualitative release and much subsequent media coverage highlighted what the Fed described as meaningful reductions in both wealth and income inequality.  Would it were so – percentages sometimes work in the Fed’s favor, but real dollars in people’s pockets, or the acute lack thereof, don’t.

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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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If You Liked the Last Crisis ….

~ Karen Petrou ~ 8 Comments

By Karen Petrou

  • New data show that the COVID pandemic is creating even more income inequality than the great financial crisis, which is saying something.
  • Wealth inequality is already climbing to unprecedented heights due to Fed intervention and resulting market gains.
  • Absent fiscal policy that reduces income inequality and a change in financial policy benefiting wealth equality, post-pandemic inequality could be still more toxic, exacerbating longstanding challenges to macroeconomic growth and increasing financial-crisis risk.
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Bad Things about the Good Place and How to Pretty It Back Up

~ Karen Petrou ~ 2 Comments

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” →