Wealth Inequality, Precariousness, Household Debt, and Macroeconomic Instability

Abstract

U.S. wealth inequality has arisen alongside slow economic growth and more economic and financial instability. We consider how these factors are connected in this article. We draw on the existing literature, supplemented with data from the Federal Reserve’s Survey of Consumer Finances, the Federal Reserve’s Distributional Financial Accounts, and the U.S. Census Bureau’s Household Pulse Survey. We show that the United States experiences a vicious cycle of continued wealth inequality in the context of unequally distributed economic risks that impede savings by those who already have little wealth to begin with. The result are greater indebtedness and more widespread macroeconomic instability. These factors perpetuate wealth inequality and economic instability. The COVID-19 pandemic illustrated these linkages, but we highlight that the underlying trends have existed for decades. Breaking this cycle requires several policy steps to build reduce wealth inequality.

Keywords:

• wealth inequality
• precarious work
• household debt
• macroeconomic instability

JEL Classification Codes:

• G51
• B5
• E21

Notes

1 Population sizes based on Federal Reserve Research (Board of Governors 2020b) for the third quarter of survey years of the Survey of Consumer Finances. All other quarters up to June 2019 are linear interpolations. Population growth after December 2019 is assumed to be the same as from September 2016 to September 2019. Real dollar values deflated using the Bureau of Economic Analysis’ (2020) price index for personal consumption expenditures. All dollar figures expressed in September 2020 dollars.

2 Authors’ calculations based on Federal Reserve research (Board of Governors 2020b).

3 Authors’ calculations based on Federal Reserve research (Board of Governors 2020b).

4 To be sure, median wealth for many quintiles in 2007 was relatively high due to inflated housing values, but median wealth in 2019 was also below levels recorded during the late 1990s and early 2000s.

5 Authors’ calculations based on Board of Governors (2020b).

6 Authors’ calculations based on Board of Governors (2020b).

Additional information

Notes on contributors

Christian E. Weller

Christian Weller is a professor of Public Policy at University of Massachusetts Boston. Emek Karakilic is a PhD student in Public Policy at University of Massachusetts Boston. This article derives from our chapter of the: “Wealth Inequality, Household Debt, and Macroeconomic Instability” in A Modern Guide to Post-Keynesian Institutional Economics, chapter 5. edited by Charles J. Whalen (2022). Cheltenham, UK: Edward Elgar. We give thanks to Olugbenga Ajilore and Oren Levin-Waldman for helpful comments on an earlier draft.

Emek Karakilic

Christian Weller is a professor of Public Policy at University of Massachusetts Boston. Emek Karakilic is a PhD student in Public Policy at University of Massachusetts Boston. This article derives from our chapter of the: “Wealth Inequality, Household Debt, and Macroeconomic Instability” in A Modern Guide to Post-Keynesian Institutional Economics, chapter 5. edited by Charles J. Whalen (2022). Cheltenham, UK: Edward Elgar. We give thanks to Olugbenga Ajilore and Oren Levin-Waldman for helpful comments on an earlier draft.