Inequality, the Great Recession, and Slow Recovery

Posted: 12 Aug 2015

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 1, 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 1, 2014). Institute for New Economic Thinking Working Paper Series No. 9. Available at SSRN: https://ssrn.com/abstract=2638030 or http://dx.doi.org/10.2139/ssrn.2638030

Barry Z. Cynamon (Contact Author)

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

Jain Family Institute ( email )

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Steven M Fazzari

Washington University in St. Louis ( email )

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