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 t ..read more

By Karen Petrou Economic inequality and ultra-low interest rates create a vicious cycle in which rates drive down savings, financial intermediation becomes less profitable, unequal households have still more difficulty preserving income and accumulating wealth, banks drop equality-essential services, consumers are made still more unequal, and it all starts all over again. Breaking this cycle requires hard decisions about which retail-banking services genuinely enhance economic equality and quickly developing effective, measurable delivery channels to promote widespread adoption. There is no s ..read more

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-equa ..read more

By Matthew Shaw and Emma Palley The more precarious a household’s financial standing, the more it must spend on basic financial services as a share of its income. Minority households continue to face substantial disparities in access to and the cost of basic financial services, putting them also at greater risk due to reliance on unregulated entities. Ultra-low rates are supposed to mean lower-cost financial services for most Americans that then encourage the consumption needed to spur employment and, if all goes according to plan, overcome the inequality cost ultra-low rates impose on the a ..read more

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 ..read more

By Karen Petrou In a dangerous double-whammy, monetary policy not only makes America even less economically equal, but economic inequality also frustrates monetary-policy transmission. Thus, recessions are deeper and longer, reversing the good-times income gains central banks take as proof that their policies are not dis-equalizing even as the wealth divide grows ever wider. Because monetary policy when rightly judged in terms of both income and wealth adversely affects economic equality and inequality stymies monetary policy, we won’t have macroeconomic-effective monetary policy until we hav ..read more

By Karen Petrou Judging U.S. rulemaking by its benefits to the public good, not just by its impact on private wealth, is transformational and, with a new CBA methodology, also more than possible. Equitable rules can be both effective and efficient. Maximizing the public good is not synonymous with redistribution or reverse discrimination. In 1993, President Bill Clinton issued Executive Order (EO) 12866, creating hurdles ahead of federal rules that are “economically significant.”  This was measured by a cost of $100 million or more.  On January 20, President Biden began a long-over ..read more

By Karen Petrou In 1975, the rewards of national economic growth were evenly distributed regardless of income.  By 2018, most Americans lost their fair share based on per capita GDP. The cost of lost income due to increased inequality to the bottom 90% over this period amounts to $2.5 trillion compared to what it would have been if GDP had remained as equitably distributed as it was before 1975. Looked at another way, the majority of U.S. workers never shared in the economic growth from 1975 to 2018. It may seem that racial disparities in U.S. income improved over this period, but this w ..read more

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. This blog, like my forthcoming book, has shown empirically and analytically in many ways that monetary policy has profound inequality impact no matter how hard central bankers try to shift all the blame to fiscal policy.  We have also shown that monetary policy that isn’t inclusive is m ..read more

By Karen Petrou Transaction and savings accounts are critical to financial security and inter-generational economic equality. Nonbank offerings might increase financial inclusion, but pose risks to safeguarding savings, personal privacy, and consumer protection unless or until consumer-finance standards symmetrically apply to banks and nonbanks offering like-kind products to vulnerable households. Public-utility, postal, or CBDC alternatives to bank accounts are a long way off and may not effectively safeguard high-risk households.  Expanding low-cost, no-risk bank accounts is a critical ..read more