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.
Continue reading “The Central-Bank Inequality Excuse and Why It’s No Exoneration”
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.
Continue reading “Fiscal Policy’s Futile Equality Expectation on Its Own”
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”
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””