Download this Paper Open PDF in Browser

Inequality, the Great Recession, and Slow Recovery

41 Pages Posted: 23 Jan 2013 Last revised: 25 Oct 2014

Barry Z. Cynamon

Federal Reserve Bank of Saint Louis

Steven M. Fazzari

Washington University in St. Louis

Multiple version iconThere are 2 versions of this paper

Date Written: October 24, 2014

Abstract

Rising inequality reduced income growth for the bottom 95 percent of the US personal income distribution beginning about 1980. To maintain stable debt to income, this group’s consumption-income ratio needed to decline, which did not happen through 2006, and its debt-income ratio rose dramatically, unlike the ratio for the top 5 percent. In the Great Recession, the consumption-income ratio for the bottom 95 percent did finally decline, consistent with tighter borrowing constraints, while the top 5 percent ratio rose, consistent with consumption smoothing. We argue that higher inequality and the associated demand drag helps explain the slow recovery.

Keywords: consumption, saving, inequality, aggregate demand

JEL Classification: D12, D31, E21

Suggested Citation

Cynamon, Barry Z. and Fazzari, Steven M., Inequality, the Great Recession, and Slow Recovery (October 24, 2014). Available at SSRN: https://ssrn.com/abstract=2205524 or http://dx.doi.org/10.2139/ssrn.2205524

Barry Z. Cynamon

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Steven M Fazzari (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
St. Louis, MO 63130
United States
314-935-5693 (Phone)
314-935-4156 (Fax)

Paper statistics

Downloads
3,759
Rank
1,893
Abstract Views
16,829