argue that folks would get back to work if government benefits such as disability payments to veterans were curtailed.32 Others quibble with various statistics illustrating income and wealth inequality on grounds that this or that data point ostensibly fails to include one or another additional or different data point such as receipt of food stamps that a particular pundit prefers.33 None of these inequality dissenters notes that, even if one adjusts data points up or down to reflect refinements, trend lines are inexorable: America is clearly unequal no matter how one measures income or wealth and became far more unequal far faster after the financial crisis. After 2008, middle-class wealth collapsed, but the wealth of the top 10 percent grew 19 percent in the following decade,34 resulting in the largest wealth-share increase – 6 percentage points – since the Second World War.35 At the same time, middle-income family wealth was still below its 2008 level, and lower-income families lost 16 percent of their pre-crisis wealth (not much to start with, of course).36
Why So Unequal So Fast?
Something happened after the 2008 crisis ebbed that turned inequality into a faster and still more corrosive force running through the fabric of American social and political thought. This book will show that this something wasn't the great financial crisis itself – painful though it was, the years between 2008 and 2010 were actually more equalizing than those that preceded them due in large part to the short-term decrease in the value of assets held by the wealthy. What happened starting in 2010 is that federal financial policy-makers tried to boost the economy and redesign American banking through a series of unprecedented market and regulatory interventions. All were well intentioned but most were nonetheless still directly and demonstrably destructive to US income and wealth equality.
Is it really plausible that financial policy on its own could make the US so much less equal at such speed? Yes. Economic equality is determined by who has the money and financial policy sets the terms on which markets allocate money to whom as dictated by the inexorable forces of profit maximization. Indeed, as we will see, financial policy now even defines what money is as well as who gets it. “Profit maximization” sounds like a textbook term, and indeed it is. But its meaning is anything but academic: profit-maximizing companies (and that's virtually all of them) set corporate strategy to satisfy the investors on whom corporate survival – not to mention senior-management bonuses – depend. Scrupulous companies will not violate law or rule to maximize profits, but they will find a way to align profits and compliance, no matter the cost to economic inequality. Once, investors were tolerant of long-term strategies that sacrificed a bit of near-term return in favor of long-term profitability. Now, not so much.
This profit-maximization construct is so common that it has characterized American corporate life for the half-century and more since Milton Friedman first pronounced:
There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.37
Many dispute the economic wisdom and even the morality of this corporate edict, but it has nonetheless defined US business behavior before, during, and after the 2008 great financial crisis and again after COVID struck in 2020. Indeed, the profit-maximization, quarter-over-quarter ethos is one contributing crisis cause. However, unless or until investors relent, it prevails.
As a result, corporations through their actions convert economic theory into financial-market reality – and a very hard reality it became after post-crisis financial policy redesigned finance. The Federal Reserve bought trillions of dollars of assets from the banking system starting in 2009, ultimately growing its portfolio to $4.5 trillion. Although these purchases effectively countered the crisis at the start, they did not jumpstart the economy as the Fed hoped. Indeed, over time, the Fed's huge portfolio made inequality even worse because the long-term impact of this unprecedented policy was to boost equity prices in the stock market, not long-term, job-producing growth.38
In 2020, the Fed repeated this playbook, this time throwing still more trillions into the financial market. As a result, stock markets bounced back from the brink in record time even as American unemployment continued to skyrocket to levels not seen since the Great Depression of the 1930s, if then.
As the Federal Reserve sucked trillions of safe assets from the financial system, investors looked desperately for places to put their funds. Starved of Treasury obligations and even of the chance to earn a reasonable rate of return by putting money in the bank, investors had little choice but to head to the stock market or to high-risk assets promising returns above the Fed's low rates. All this demand boosted equity prices, which led to more demand and still higher stock prices. The more financial markets go up, the still better off the wealthy become, at least for as long as markets go up or the Fed prevents them from coming back down.
If all Americans owned stock, then all Americans would benefit from rising markets, but all Americans don't own stock; the bulk of household stock ownership – 86.5 percent – was in the hands of the wealthiest 10 percent of households, and the top 1 percent owns more than half of all US stock.39
To be sure, many Americans owned stock in 401(k) plans and mutual funds. But wealth doesn't come from just owning stock; it's of course due to how much you own. The percentages showing that the rich benefit most from rising financial markets of course reflect the fact that stock ownership is best measured by the value of the shares each person owns, not by the number of people who own them.
As a result, Fed asset purchases stoked stock-market rises that dramatically increased the wealth of those able to invest in the stock market. From 2007 to 2019, the S&P index for stocks rose 77 percent; that is, an investor with $10,000 in the market at the start of the crisis would have $17,700 to show for it after these twelve years. As shown below, small savers who were not also stock-market investors were worse off than ever before. Wealth inequality was thus even worse than it was before 2008, and the Fed is to blame for at least part of it.
Even worse, the Fed's portfolio also increased income inequality. Looking out for themselves and working hard to comply with tough post-crisis rules, banks didn't just take the money and lend it out as the Fed's economic theories expected. More loans would have likely led to more jobs. Instead, banks took the money and then allocated it not to suit the Fed's monetary-policy theories, but rather to maximize profitability. Fearful of losing money if they made the growth-boosting loans predicted in Fed models, banks used the cash to buttress their reserves as higher capital requirements kicked in. Capital requirements demand that shareholder equity stand behind bank lending, making the cost of lending higher because investors have lots of places to put their funds to use if stock prices at banks fail to suit them. Whatever capital banks had to spare thus went into dividends or stock repurchases that made investors richer or, if market conditions didn't allow, then to backing “excess reserves” – that is, into deposits at the Federal Reserve instead of into loans to hard-pressed households trying to refinance their mortgages, put kids through school, or just make ends meet.
Of course, banks also lend to corporations. One might thus have thought – the Fed surely did – that banks wary of consumers would still lend to companies that then built plants and bought more equipment, stimulating the recovery as conventional thinking dictates. However, companies that got loans didn't boost economic growth;
