Tag: Wealth Distribution

When Politicians Tell Voters They’re Dining on Fine Fare But Voters are Eating Hot Dogs: How Bidenomics Exacerbates the President’s Political Problem

~ Karen Petrou ~ Leave a comment
  • Bidenomics is based on assertions that the economy is doing well thanks to the President, but most Americans believe it isn’t because the economy according to Biden is not the economy most Americans experience every day.
  • The aggregate unemployment level in which the President takes such pride doesn’t reflect real unemployment or – far more important – real wages.  The bottom 50% of U.S. households would have to earn $5,000 more today just to buy what they bought at the end of 2019 despite the wage gains in which the President and Fed take such pride.
  • Progress curbing inflation isn’t as the President portrays it because almost two-thirds of Americans are living paycheck to paycheck and skimping on or even skipping goods and services.  Only a quarter of middle-class households can now afford a home, down from fifty percent in 2019.
  • Effective political rhetoric recognizes reality.  The President must thus speak to policy changes, not past accomplishments, and make it clear he understands how hard most households have it.

For Mr. Biden to gain voter traction on economic policy, he’ll need to persuade the two out of three voters who disapprove of his economic record despite proclamations of progress each time job numbers go up and inflation seems to go down a bit.[1]  Bouncing GDP numbers haven’t and won’t suffice because GDP is a poor measure of prosperity across the distributional income and wealth curves.  Low unemployment numbers also aren’t persuasive because they come in part from the large number of people no longer in the market because wages are still so low.  Employment numbers are also buttressed by the millions of Americans holding down multiple jobs to make ends sort-of meet. 

Continue reading “When Politicians Tell Voters They’re Dining on Fine Fare But Voters are Eating Hot Dogs: How Bidenomics Exacerbates the President’s Political Problem” →

The Central-Bank Inequality Excuse and Why It’s No Exoneration

~ Karen Petrou ~ Leave a comment

By Karen Petrou

  • Although a new BIS report finally takes seriously the proposition that central banks may inadvertently increase economic inequality, it goes on to dismiss it because any inequality impact is said to be short-lived thanks to fiscal policy. 
  • However, neither short-lived inequality nor effective fiscal clean-up is substantiated by data in the U.S.
  • But, while the BIS at least acknowledges some inequality impact, the Federal Reserve is obdurate that it doesn’t make economic inequality even a little bit worse.  This means prolonged policy with still more profound anti-equality impact.

It is the purpose of this blog and my new book to show not just that monetary and regulatory policy may increase economic inequality, but also that the Fed’s policies since at least 2010 in fact did so.  This isn’t an academic exercise – it’s an effort to show as analytically as possible how monetary policy exacerbates inequality so monetary policy alters course before inequality’s systemic, political, and human cost grow still higher.  However, disciplined analytics that power up effective advocacy must be open to correction.  This blog post thus looks first at a new, if halting, acknowledgement of at least some inequality impact from the Bank for International Settlements and then the Fed’s still-stout denial that it has any responsibility for the growing U.S. wealth and income divide.

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Fiscal Policy’s Futile Equality Expectation on Its Own

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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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Central Bankers Can Do More Than Just Care about Economic Inequality

~ Karen Petrou ~ 2 Comments

By Karen Petrou

  • New evidence reinforces monetary policy’s distributional impact.
  • Monetary policy can also be redesigned to ensure that its distributional impact enhances equality instead of – as now – making it worse.
  • More evidence also reinforces the link between unequal monetary policy and slow growth.
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Wheelies on the Yield Curve:  Inequality, Disintermediation and the Hazards of New QE

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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” →