Inequality, the Great Recession, and Slow Recovery

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

See all articles by Barry Z. Cynamon

Barry Z. Cynamon

Better Future Forward; Jain Family Institute

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

Better Future Forward ( email )

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HOME PAGE: http://www.betterfutureforward.org

Jain Family Institute ( email )

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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)

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