Rising inequality and stagnation in the US economy

Barry Z. Cynamon · Steven M. Fazzari

55 citations0/0 files storedEuropean Journal of Economics and Economic Policies Intervention

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Economic Theory and Policy Monetary Policy and Economic Impact Income, Poverty, and Inequality

Abstract

US household demand is well below its trend from prior to the Great Recession. We link weak demand to rising income inequality. The demand problem did not arise contemporaneously with higher income inequality because the bottom 95 percent of the income distribution went deeply into debt to maintain consumption growth despite their stagnant income growth. But we argue that the demand impact of greater inequality did appear in the aftermath of the recession. A calibrated Keynesian growth model shows that the lower income share of the bottom 95 percent can explain the deviation of the US economy from its pre-recession trend.

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References

2014U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound 2004Do the Rich Save More?2006Household Expenditure and the Income Tax Rebates of 2001 2008Rising household debt: Its causes and macroeconomic implications--a long-period analysis 2015Post-Keynesian economics: new foundations 2006MATURITY, STAGNATION AND CONSUMER DEBT: A STEINDLIAN APPROACH 2014Inequality, the Great Recession and slow recovery 2010Handbook of Alternative Theories of Economic Growth

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