Rising Inequality, Demand, and Growth in the US Economy

17 Pages Posted: 27 Feb 2015  

Barry Z. Cynamon

Federal Reserve Bank of Saint Louis

Steven M. Fazzari

Washington University in St. Louis

Date Written: February 25, 2015

Abstract

We use consumption and balance sheet data disaggregated between the top 5% and the bottom 95% of US households by income to show that the bottom 95% went deeply into debt to mitigate the impact of their stagnant incomes on their consumption. We use micro data to calibrate an intrinsic Keynesian growth model and show that over a range of plausible parameter values, the rise in US household income inequality increased enough between the early 1980s and 2000s to cause the entire magnitude of the Great Recession and can explain the slow and prolonged recovery.

Keywords: Aggregate Demand, Consumption, Saving, Household, National Income and Product Accounts

JEL Classification: D31, E01, E12, E21

Suggested Citation

Cynamon, Barry Z. and Fazzari, Steven M., Rising Inequality, Demand, and Growth in the US Economy (February 25, 2015). Available at SSRN: https://ssrn.com/abstract=2570506 or http://dx.doi.org/10.2139/ssrn.2570506

Barry Z. Cynamon (Contact Author)

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Steven M Fazzari

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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