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 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.
Continue reading “The Dollars That Make a Difference: Results of the New Survey of Consumer Finances”
By Karen Petrou
As the COVID crisis continues, some have speculated that wealth inequality will drop because it did in the 1400s during the Black Death. However, this cure is not only of course considerably worse than the disease, but it’s also no cure. Economic inequality is a cumulative process – the worse off you are, the worse off you get unless something positive reverses this compound effect. Conversely, the better off, the still more comfortable unless something comes along to redistribute your gains, however well or ill gotten. Given how unequal the U.S. was before COVID, it will surely get only more so now, especially if the Fed stays the course with trillions for financial markets and pennies for everyone else. Continue reading “Inequality Rising”
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”