Some say low interest rates cause inequality. What if it was the other way around?

They found that the role of higher inequality was much larger than that of demographics. It is not that high incomes have increased thei...


They found that the role of higher inequality was much larger than that of demographics.

It is not that high incomes have increased their savings rate. On the contrary, they were winning a bigger share of the economic pie; According to the researchers’ calculations, the share of income going to the richest 10 percent of wage earners has risen to over 45 percent in recent years, from around 30 percent in the early 1970s.

The result of top earners earning more, and therefore saving more, represents trillions of dollars in additional savings over the years, accounting for 30-40% of private savings from 1995 to 2019.

So whatever the causes of rising income inequality – most likely a combination of technological changes, declining union power, globalization, changes in tax policy and market dynamics where the winner takes it all – this has set in motion forces resulting in the accumulation of assets of these wealthy people soar in value.

“As the rich get richer in terms of income, it creates a glut of savings,” Professor Mian said. “The savings glut is forcing interest rates down, making the rich even richer. Inequality breeds inequality. It’s a vicious cycle, and we’re stuck in it.

Their paper is hardly definitive, and other economists at the symposium noted a few problems – for example, that the fall in the natural interest rate has been a global phenomenon, occurring even in countries with trends of inequality. incomes different from those of the United States. States. And Jason Furman, the Harvard economist, noted that the widening inequality was most intense in the years before 2000, when the fall in the natural interest rate has mostly occurred since then.

But no matter how strong income inequality is in driving low rates, high asset prices, and higher wealth inequalities, the situation puts the Fed and other global central banks in a tough spot.

“These forces that are pushing r-star down are probably so powerful that the Fed could never fight them,” Professor Sufi said in an email.

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Newsrust - US Top News: Some say low interest rates cause inequality. What if it was the other way around?
Some say low interest rates cause inequality. What if it was the other way around?
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