Ultra-Low Rates and Extra-High Inequality

By Karen Petrou

On March 12, the Financial Times ran one of Martin Wolf’s insightful columns, this one focusing on a critical facet of post-crisis monetary policy – ultra-low interest rates – to see why so much monetary-policy firepower had had such minimal macroeconomic impact.  Mr. Wolf suspects that the secular stagnation first framed by Lawrence Summers means that ultra-low real rates are here to stay due in part to economic inequality.  However, what if ultra-low rates on their own exacerbate inequality and thus create a negative feedback loop with dangerous implications not only for long-term growth and financial stability, but also for inequality?  Considerable evidence shows that ultra-low rates are inextricably intertwined with extra-high inequality.  Fed thinking on the new neutral rate thus must prick the traditional neo-Keynesian bubble to ensure that Chairman Powell’s new normalization isn’t a path to still worse inequality. Continue reading “Ultra-Low Rates and Extra-High Inequality”

Gross Domestic Product and U.S. Inequality

By Karen Petrou

On January 22, Rep. Carolyn Maloney (D-NY) and 18 senior House Democrats reintroduced legislation (now H.R. 707) requiring federal statisticians to provide an equality-focused insight into the gross domestic product (GDP) number all too often considered the arbiter of American prosperity.  Senate Minority Leader Schumer (D-NY) and Sen. Martin Heinrich (D-NM) introduced the same bill last year and are sure to do it again and, then to join Maloney in pressing for action.  This time, it will come quickly in the House and may well pass the Senate in this Congress.  Would it make an equality difference?  No, but at least we’d know more clearly how much trouble we’re in.
Continue reading “Gross Domestic Product and U.S. Inequality”

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”

How the Other Half Goes Broke

By Karen Shaw Petrou and Matthew Shaw

In our last blog post, we laid out the most telling inequality-data points from an important new study from the Federal Reserve Bank of Minneapolis which for the first time runs from 1949 to 2016 and adds many critical equality measures.  These data show more decisively than ever not only that wealth inequality in 2016 is the worst since at least the Second World War, but also that this is due to who holds the assets that have gained the most.  Since which assets return how much is due now in large part to post-crisis monetary and regulatory policy rather than to market forces and broader macroeconomic trends, it’s post-crisis policy – not forces from beyond – that increasingly dictates U.S. economic equality. Continue reading “How the Other Half Goes Broke”

It’s Worse Than You Thought

By Karen Shaw Petrou and Matthew Shaw

Janet Yellen, Ben Bernanke, and Jerome Powell have each bemoaned U.S. economic inequality and then asserted that it’s everyone else’s fault.  On the blog and in our speeches, we counter that post-crisis monetary and regulatory policy had an unintended but nonetheless dramatic and destructive impact on the income and wealth divides.  In doing so, we often point to just how much worse and how much faster inequality became as post-crisis policy took hold.  Demographics, technology, and trade policy didn’t change anywhere near that much that fast.  Now, a new study from the Federal Reserve Bank of Minneapolis takes the story forward with a trove of data evaluating U.S. economic inequality from 1949 through 2016.  For all the recovery and employment the Fed cites in its equality defense, these data tell a far different tale.   Continue reading “It’s Worse Than You Thought”