Inequality, the Great Recession and slow recovery

Abstract

Rising inequality reduced income growth for the bottom 95 percent of the US personal income distribution beginning about 1980. To maintain stable debt to income, this group's consumption-income ratio needed to decline, which did not happen through 2006, and its debt-income ratio rose dramatically, unlike the ratio for the top 5 percent. In the Great Recession, the consumption-income ratio for the bottom 95 percent did finally decline, consistent with tighter borrowing constraints, while the top 5 percent ratio rose, consistent with consumption smoothing. We argue that higher inequality and the associated demand drag helps explain the slow recovery.

Debt or Wage-led Growth : the European Integration

“…We advocate changing the EU's wage-moderation strategy. We confirm the central idea in the post-Keynesian/post-Kaleckian demand-led model developed by Bhaduri and Marglin (1990), which argues that high real wages generate high effective demand, against the view that high labor costs discourage production (Lavoie and Stockhammer 2012, Onaran and Galanis 2012, Cynamon and Fazzari 2015.…”

Why the Keynesian Multiplier Increases During Hard Times: A Theoretical Explanation Based on Rentiers' Saving Behaviour

“…If we agree with the idea that the evolution of the propensity to save of rentiers prevails over the evolution of the propensity to save of modest households, from our point of view, we have to explore the possibility that recessions first provoke a decrease in the propensity to save (consumption smoothing) and then an increase so as to return to normal conditions. Some empirical studies seem to confirm this kind of behaviour as shown by Cynamon and Fazzari (2013) when they examine the rise of inequalities 3 [E]ssentially all of the increased spending apparent in the aggregate data (the acceleration in the saving rate's decline shown in figure 1) can be attributed to an increase in the propensity to consume out of income undertaken by the richest households in the U.S. (Maki and Palumbo, 2001, p. 3).…”

“…However, this result does not hold if we consider an endogenous capitalists' propensity to save evolving with the state of the economy as captured by the rate of capacity. Following the stylized facts discussed in Cynamon and Fazzari (2013) and the discussion in section 3, we assume that rentiers' propensity to save varies in the short-run according to the following simple linear relation:…”

Heterogeneity in Economic Shocks and Household Spending in the US

“…Cynamon and Fazzari (2014) come to a similar conclusion about debt and spending across the income distribution, using a combination of micro and macro data sources.5 Bertrand and Morse (2013) andBricker, Ramcharan and Krimmel (2014) describe other (non-standard) mechanisms by which rising inequality may increase aggregate spending.…”