families found financing from high-flying, unregulated financial companies, but this often came at great cost and long-term equality risk. As the last decade closed, new forms of unregulated financial institutions were increasingly powered by new forms of money, much of it formulated by giant tech companies such as Facebook, which over the same years digitalized both economic and everyday life to their own considerable advantage.
What the Fed called a robust recovery was in fact the slowest since the Second World War and the most inequitably shared one ever, as this book will prove. The economy was also very fragile because gains were in large part derived from high-flying financial markets with no staying power beyond the wind the Fed put beneath their wings. Ultra-low interest rates not only failed to stimulate growth, but also made most Americans even worse off because trillions of dollars in savings were sacrificed in favor of ever higher stock markets. Even families with a bit put aside and those with a strong case to start a small business couldn't get loans at reasonable rates on safe-and-sound terms. In short, the economic-equality divide got bigger – a lot bigger – due to all of these financial policies. Capitalism is working fine, but only for capitalists.
Federal Reserve chairs and other financial policy-makers clearly understand what's happening. They see that economic inequality has wrought havoc in American political consensus,6 household well-being,7 and even mortality rates.8 As COVID decimated the nation, the chairman of the Federal Reserve noted that it was an inequality “increaser.”9 However, at the same time and often in the same speech, Fed chairs eschew any responsibility for inequality, preferring to ascribe it to unavoidable innovation, an aging population, long-term problems in the US educational system, unaffordable housing, or fiscal policy. All of these are indeed potent inequality drivers, but that there are other causes of US inequality doesn't absolve financial policy-makers from fixing the ones readily within their own reach.
One reason financial policy-makers dismissed suggestions about their anti-equality effects is that they and the economics theorists on whom they rely failed to anticipate how financial markets responded to all of these reforms. More than a decade after 2008, stock markets rode higher and higher at ever greater risk due to a new set of incentives created by Fed policy. Banks are indeed safer, but now also so different that Facebook is ready to replace them – hardly a comforting thought.
Fixing monetary and regulatory policy won't on their own bring back the “glory days”10 many of us expect in America. But fixing financial policy will have fast impact, meaningfully improving equality and buoying hope for a “kinder and gentler”11 nation and shared prosperity. Unlike many other causes of income and wealth inequality, financial policy is remarkably easy to fix and quick-acting afterwards. All it takes is the will to act.
What We Know about Inequality that Economists Don't
Decades before today's economists reached their conclusions based on complex models that only more or less have anything to do with real life, Harry S. Truman observed, “An economist is a man who wears a watch chain with a Phi Beta Kappa key at one end and no watch at the other.”12 The Federal Reserve and the economists on which it relies have been clutching fancy chains, but most Americans know what economic time it is and many are not the least bit happy about it.
Americans once proudly thought – and many economists still believe – that the US is a middle-class nation. However, the middle class has been hollowed out. Now the US consists of a large majority of folks barely getting by plus a tiny sliver of wealthy households.13 In fact, just three Americans – Bill Gates, Jeff Bezos, and Warren Buffett – own more of the nation's financial wealth than the bottom half of the country combined.14 Even what's left of the middle class isn't what it was – 23 percent of families that are still considered middle class skipped medical treatments they could no longer afford even before the COVID crisis left many more Americans without employer-provided health insurance.15 Despite sharp spikes in the cost of medical and child care, education, and housing, middle-class median income in inflation-adjusted terms was about the same in 2019 as 2001.16
In fact, income inequality in 2019 was even worse in the US than it was during the Great Depression.17 Reflecting this, 37 percent of the US was at grave financial risk after only a $400 unexpected expense.18 Clearly, unexpected expenses poured down in waves after COVID hit, increasing the percentage of Americans who couldn't pay their monthly bills in full by 12.5 percent between just late 2019 and April 2020.19
The younger you are, the worse it gets. In the “theft of a decade” characterizing the years after 2008 for younger citizens, Americans entering the workforce were mired in student debt, struggled to find jobs, and generally owned nothing more than a car that they could call their own.20 In 2019, the average net worth of millennials was still just $8,000, far less than earlier generations at their age.21 When COVID hit millennials yet again, some called them the “unluckiest generation ever.”22 This might not be historically true, but anger across the entire US political spectrum tells us that it's how millions feel. Even relatively wealthy Americans said that their financial position was a cause of acute stress, and that was before COVID.23
Cut these data down to see how African Americans and Hispanics are doing and one sees still sharper divides – racial economic-equality disparities are as bad as they were before the civil rights era promised Black Americans a better, fairer deal. There is now a bigger homeownership gap between Black and white Americans than before 1968, when critical fair-housing legislation was first signed into law.24 In 2016, white household average wealth was seven times that of Black households and five times that of Hispanics.25
The Economic-Recovery Mirage
The Federal Reserve touted a robust US economy starting in 201526 and then up to and even after COVID hit in March 2020.27 President Trump cited stock prices, gross domestic product (GDP), and “record” employment numbers when it suited him. When it didn't, he blamed the Fed, arguing that big economic gains on all of these counts would have continued were it not for a miserly central bank or, after COVID, unduly cautious public-health officials. Mr. Trump had a far better sense of the electorate's mood and how to move it than the Fed. But each of their statements nonetheless portrayed a prosperity remote from the lives of many, including large percentages of those who voted for Donald Trump in 2016.
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