Inequality, the Great Recession, and Slow Recovery

Barry Cynamon and Steven Fazzari

No 9, Working Papers Series from Institute for New Economic Thinking

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.

JEL-codes: D12 D31 E21 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014-01
New Economics Papers: this item is included in nep-mac and nep-pke
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Inequality, the Great Recession and slow recovery (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:9

DOI: 10.2139/ssrn.2638030

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