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Diane Swonk @dianeswonk.bsky.social · 39m

The hallowing out of the middle class and the economy. We are at a precipice. My take here.

kpmg.com/us/en/articl...

Bye, bye Miss American Pie

The outlook: inequality and consumer angst

kpmg.com

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Diane Swonk @dianeswonk.bsky.social · 7h

Some economists have been arguing it for some time…such as myself. The scarring effects of the Great Recession were deep. Millennials & Gen X hit differently.

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Diane Swonk @dianeswonk.bsky.social · 9h

Sorry. Here you go.

www.minneapolisfed.org/article/2023...

Telling the nuanced story of economic inequality in the U.S., layer by layer | Federal Reserve Bank of Minneapolis

Minneapolis Fed economists find widening gaps—while government plays a large and growing role in countering them

www.minneapolisfed.org

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Diane Swonk @dianeswonk.bsky.social · 9h

www.minneapolisfed.org/article/2023...

Telling the nuanced story of economic inequality in the U.S., layer by layer | Federal Reserve Bank of Minneapolis

Minneapolis Fed economists find widening gaps—while government plays a large and growing role in countering them

www.minneapolisfed.org

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Diane Swonk @dianeswonk.bsky.social · 9h

Research in economics is rich with systemic bias and the role it plays in stoking inequality. Synergies across fields is beneficial.

Diane Swonk @dianeswonk.bsky.social · 9h

Worse yet, affluent household can buoy inflation in some goods and services even as most households push back.

Inequality complicates the Fed’s job in curbing inflation, which is in and of itself, highly corrosive.

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Diane Swonk @dianeswonk.bsky.social · 9h

The outliers on consumer attitude surveys are those earning over $200K & with large stock portfolios. They are confident. We lose them, the apple cart tips.

Inflation stokes inequality and is a residual of inequality.

Wealthy households spurre post pandemic inflation. aei.org/research-produ…

https://aei.org/research-produ…

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Diane Swonk @dianeswonk.bsky.social · 9h

Delays in major milestones among younger generations from marriage to homeownership and having families only exacerbated that sense.

Worse yet, the economy adds up on paper to look better than it feels to the majority of Americans. That is what we are already seeing & have been for some time.

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Diane Swonk @dianeswonk.bsky.social · 9h

I think of it like traveling in traffic in a vehicle that is in the slow lane. As other vehicles pass you and the distance increases, the sensation you feel is one of being left behind even if you are moving forward.

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Diane Swonk @dianeswonk.bsky.social · 9h

When the economy has more unequal income and wealth distributions a lot gets distorted.

Each generation may be making progress on average, but as the pace slows, there is a literal sense of falling behind.

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Diane Swonk @dianeswonk.bsky.social · 9h

BUT, later generations are not progressing as fast as previous generations.

Inequality is nuanced and needs to be seen that way. This is a great piece on that.

minneapolisfed.org/article/2023/t…

https://minneapolisfed.org/article/2023/t…

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Diane Swonk @dianeswonk.bsky.social · 9h

…although the desperation and cottage industry of subprime mortgages was also a symptom of the kind of debt accumulation that occurs when inequality is high.

That doesn’t mean that different generations are not making progress. Federal Reserve research shows each generation is still moving forward.

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Diane Swonk @dianeswonk.bsky.social · 9h

Other factors are uneven access to education and health care, shifts in tax and spending policies, rise of monopsonies, bias in hiring & an erosion of labor protections.

The Great Recession was scarring & dealt another blow to equality…

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Diane Swonk @dianeswonk.bsky.social · 9h

The causes of inequality span a large number of factors. Innovation is one of the largest. Globalization is another, although many conflate its effects with automation.

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Diane Swonk @dianeswonk.bsky.social · 9h

The US hit a Gini coefficient of 41.8 in 2023, the second highest year on record to 1963 and inequality has pooled more since then.

The post WWII era of declining income inequality ended in 1979.

Since then, inequality increased w/a brief pause in the 1990s boom & post pandemic. It was fleeting.

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Diane Swonk @dianeswonk.bsky.social · 9h

They estimate a Gini coefficient of 40 (or .4 depending on the index) represents a sort of threshold, where inequality is a negative.

Here is their research. blogs.worldbank.org/en/opendata/....

Inside the World Bank’s new inequality indicator: The number of countries with high inequality

Discover the World Bank's new inequality indicator, highlighting countries with high inequality. This blog delves into the implications of the indicator, the decline in highly unequal countries, and t...

blogs.worldbank.org

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Diane Swonk @dianeswonk.bsky.social · 9h

We are seeing a pooling of incomes and wealth and are on the edge of a tipping point that the research by economists at the International Monetary Fund & World Banks shows is more corrosive than conducive to growth.

International Monetary Fund

https://imf.org/en/Topics/Ineq…

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Diane Swonk @dianeswonk.bsky.social · 9h

The nonpartisan Congressional Budget office has found wealth inequities rise to highest on record, along with wealth inequality. Their wealth data dates back only to 1989; their income inequality reports go back to 1979.

Here they are: cob.gov/publication/60…

cbo.gov/publication/60��

https://cbo.gov/publication/60…

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Diane Swonk @dianeswonk.bsky.social · 9h

But, that is not the whole story. Wealth within age groups has become more unequal, with the top 10% of Millennials having more wealth than their baby boomer cohorts AT THE SAME AGE.

cepr.org/voxeu/column...

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Diane Swonk @dianeswonk.bsky.social · 9h

More on inequality to come.

Some recent studies worth thinking about.

The age group with the most wealth over time is those over 75. A compounding of financial market returns and the equity in their homes are the primary reason.

nber.org/papers/w34131#…

The Extraordinary Rise in the Wealth of Older American Households

Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, an...

https://nber.org/papers/w34131#…

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Diane Swonk @dianeswonk.bsky.social · 7d

No crisis yet…worry more about pockets of private debt market, which is getting a lot of funds flowing into it, as affluent household reach for yield and they are opening up for all investors.

The Federal Reserve is watching

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Diane Swonk @dianeswonk.bsky.social · 7d

Seriously delinquent student loans, the primary driver of defaults pre-pandemic are at an all-time high.
Delinquencies on home equity lines of credit are above 2019 levels.

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Diane Swonk @dianeswonk.bsky.social · 7d

Affluent households ca afford to take greater risks with their investments, which tend to foment asset bubbles.

Meanwhile, we tend to see low-and middle-income households take on excessive levels of debt to sustain even the most basic of expenses.

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Diane Swonk @dianeswonk.bsky.social · 7d

The inequality we are enduring is not aspirational; it is destructive and dampening growth.

High-income households have a lower propensity to spend than low and middle income households. Spending that is carried by them is less than when the dollars show up in lower income strata.

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Diane Swonk @dianeswonk.bsky.social · 7d

Some level of inequality is expected and aspirational in a market-based economy. Everything from skills, luck and grit can create inequality.

Extreme inequality is not and can dampen growth and leave large swaths of the population desperate rather than aspiring.

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