This Little Equality Goes to Market

By Karen Petrou

After crafting the initial features of the post-crisis bank-regulatory framework, global and U.S. policy-makers were dumbfounded to discover that costly new rules changed the competitive financial-market balance.  Mirabile dictu, when costs rose for banks, banks changed their business model to cling to as much investor return as possible instead of, as regulators apparently expected, taking it on the chin to ensure ongoing financial-service delivery at whatever pittance of a profit remained.  As markets rapidly and in some cases radically redefined themselves, global regulators dubbed the beneficiaries of this new competitive landscape “shadow banks.”  At the most recent meeting of the FSB Plenary, they changed   shadow banks to the less stealthy moniker of “non-bank financial intermediaries.”  A new BIS working paper shortens the scope of shadow banking to “market-based finance,” going on to assess a fundamental question:  does the transformation of financial intermediation from banks to non-banks alter the income and equality landscape?  The answer:  It’s complicated. Continue reading “This Little Equality Goes to Market”

Can We Create Equality Insurance?

By Karen Petrou

Much of the work posted so far on this blog centers on the traditional pillars of financial policy:  monetary policy and the sweeping post-crisis framework of bank regulation.  But, awesome though the Fed’s reach may be and as critical as banking is to income and wealth equality, these financial-policy channels are not the only ones that determine economic equality.  In this blog post, we assess another policy channel:  health, property-and-casualty, and life insurance.  With almost no research in this sector, we pose questions based on what we’ve read and what we think we know based on all our other works.  At the least, insurance requires equality evaluation and, quite likely, significant changes so it makes low-and-moderate income and wealth families healthier, readier to retire, better positioned to bequeath wealth to their children, and all around more equal. Continue reading “Can We Create Equality Insurance?”

Inequality Hits Fiscal Reality

By Karen Petrou

Readers of this blog know well that we think U.S. economic inequality is not only a profound social-welfare and political-consensus problem, but also a scourge to financial-market stability.  We have not generally wandered into fiscal-policy questions, preferring to focus on a far less well-known, but potent inequality force:  U.S. monetary and regulatory policy.  However, financial and fiscal policy are inextricably intertwined.  If inequality increases the risk of financial crises – which it does – and financial crises pose macroeconomic risk – which of course they do – then fiscal policy must ride to the rescue to prevent prolonged recession or even depression.  Could it, given how acute U.S. economic inequality has become?  A new report from Moody’s says that the rating agency may well have to downgrade U.S. debt – the AAA sine qua non of global finance – due to inequality.  Continue reading “Inequality Hits Fiscal Reality”

If You Really Want to Be Unequal, Be Disabled

By Karen Petrou and Matthew Shaw*

Like most who assess U.S. economic inequality, we’ve focused in this blog on the way income and wealth divide across Americans in general, by race, by age, by gender, by ethnicity, and even by nothing more than where one lives.  However, working on another pro bono initiative – this time to speed biomedical research – it’s dawned on us that there’s another major factor that divides the haves from the have-nots that’s even less the result of individual action than all these well-studied demographic criteria:  disability. Continue reading “If You Really Want to Be Unequal, Be Disabled”

Hard Work, Low Pay, High Costs: Life on the Ground in a “Well-Performing” Economy

By Matthew Shaw and Drake Palmer

Recent jobs data sparked excitement as news reports talked of how America is finally going back to work.  This is understandable optimism, based as it was on a concurrent rise in labor-force participation and a drop in the government’s preferred measure of unemploymentHere, we assess whether the Fed’s “solid” and “very well performing” economy has finally allowed low-and-moderate income (LMI) households to share the prosperity rapidly pooling at the very top of the income and wealth distribution.  In short, and sad to say, it isn’t – hourly pay for low-wage/low-skill workers has declined in real (i.e., inflation-adjusted) terms over the past four decades and is essentially flat since 2010.  As we noted in our last blog post, wealth concentration has soared since the financial crisis.  Even if a corner has now been turned for everyone else, it’s just a very tight one at the bottom of the equality canyon. Continue reading “Hard Work, Low Pay, High Costs: Life on the Ground in a “Well-Performing” Economy”