As Politico’s MorningMoney today stated, the Warren “wealth-tax” proposal laid down a marker setting the tone for progressive fiscal policy in this Congress and the upcoming election. Why wouldn’t it? From 2010 to 2016, the median wealth of the top ten percent of income earners in the U.S. grew an astonishing 24 percent. The data don’t go on to 2018, but the number has to be still more astounding – year-over-year returns on the 2010 median $1.3 million net worth in this chart are tidy. At the top of the wealth scale, things are still more comfy – global billionaires got 262 percent richer from 2009 to 2017. Politico suggests that the GOP counter to the wealth tax is that it punishes success – not to mention a few of the party’s high office-holders. Surely, there’s a more constructive policy response to acute wealth inequity. Certainly, the financial-services industry needs to identify it before progressives not only push the wealth tax, but remember Obama-era ideas for a financial-transaction and big-bank tax too.
The post-crisis data on wealth equality are fascinating in the broader context of crisis impact and financial policies adopted by the Fed and global regulators thereafter. As we’ve noted in numerous posts on our EconomicEquality blog, the U.S. was increasingly unequal starting in the early 1980s, but something stunning happened in 2010. After income and wealth equality improved a bit in the midst of the crisis – the same pattern evident during the Great Depression – inequality went up with dizzying force starting in 2010.
Income-inequality data aren’t as jaw-dropping as the wealth numbers, but they are nonetheless breath-taking: from 2010 to 2016, the top ten percent of U.S. income earners saw their median income rise 14.5 percent. The bottom twenty percent in this time period got about 4.4 percent poorer and barely broke even in terms of income over the entire six years.
What’s left of the middle class did better than the poorest Americans, but nowhere near enough to make them content about their own economic prospects, let alone that of their children. Middle-class earners (i.e., those earning between forty to sixty percent of median income) were $10,000 real dollars poorer in 2016 than they were in 2004.
Did all of these data get so bad so fast because underlying demographic, globalization, educational, or technological trends picked up steam? The data do not support this – things were bad before 2007, but not this bad. One reason the U.S. got more equal after the Great Depression was public policy that advanced equality. One reason the U.S. got a lot less equal a lot faster after 2010 is also policy-based, and the policies that put their fingers down on the equality scale are post-crisis monetary and regulatory decisions.
The Fed is clearly fumbling on how best to normalize policy – it knows it wants to do this but can’t for the life of it figure out what to do with its huge portfolio or even how to set policy without it. The agencies know that their rules have sparked exponential growth in non-bank financial institutions and increasing threats to financial stability. They are also looking warily ahead to anticipate a landscape in which technology firms outside their reach dominate U.S. financial intermediation. But, again, no policy-maker is doing anything more that muttering about “monitoring.”
We’ll address the economic-inequality impact of this transformational shift of U.S. finance in a report to come early next week. For now, suffice it to say that, if financial institutions do not lay out a concrete course of equality-enhancing policy changes, they – not the Fed or the regulators – will pay dearly for its absence.
Much of the highly-problematic policy since 2010 can be laid at the Fed’s doorstep along with those of the federal banking agencies. I detailed why these unintended consequences proved so pernicious in a speech last year to the Federal Reserve Bank of New York and the EconomicEquality blog brings this analysis up to date. Suffice it to say now only that the Fed has continued its inequality-enabling policy and seems to have no idea how to normalize any of it. The Fed’s still-huge portfolio is particularly disequalizing – studies show that all it’s done since the crisis ebbed was boost equity prices. But, as the media reiterated today , the Fed may hold on to its trillions simply because it doesn’t know what to do without them.
Given all this, the wealth, financial-transaction, and big-bank taxes aren’t the only ones on the progressives’ table. As we noted last week, public and postal banking are also big ideas for those who don’t much like banks but know how critical basic banking services are to those without ready access to a trust fund or two. I know from talking to bankers ranging from those at the community level to officers of the nation’s very biggest banks that the industry is truly appalled at how unequal America has gotten and how hard it is for banks to offer the equality-critical deposit, loan, and advisory services.