Inequality, the Great Recession, and Slow Recovery
Barry Z. Cynamon
Federal Reserve Bank of Saint Louis
Steven M. Fazzari
Washington University in St. Louis
November 20, 2013
Rising inequality reduced income growth for the bottom 95% of the income distribution beginning around 1980, but that group’s consumption growth did not fall proportionally. Instead, lower saving put the bottom 95% on an unsustainable financial path that eventually triggered the Great Recession. An original decomposition of consumption and saving across income groups shows that the consumption-income ratio of the bottom 95% fell sharply in the recession, consistent with tighter borrowing constraints. The top 5% ratio rose, consistent with consumption smoothing. In the recession’s aftermath, the inability of the bottom 95% to generate adequate demand helps explain the slow recovery.
Number of Pages in PDF File: 35
Keywords: consumption, saving, aggregate demand, inequality
JEL Classification: D12, D31, E21working papers series
Date posted: January 23, 2013 ; Last revised: November 20, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.312 seconds