about their anti-equality effects is that they and the economics theorists on whom they rely failed to anticipate how financial markets responded to all of these reforms. More than a decade after 2008, stock markets rode higher and higher at ever greater risk due to a new set of incentives created by Fed policy. Banks are indeed safer, but now also so different that Facebook is ready to replace them – hardly a comforting thought.
Fixing monetary and regulatory policy won't on their own bring back the “glory days”10 many of us expect in America. But fixing financial policy will have fast impact, meaningfully improving equality and buoying hope for a “kinder and gentler”11 nation and shared prosperity. Unlike many other causes of income and wealth inequality, financial policy is remarkably easy to fix and quick-acting afterwards. All it takes is the will to act.
What We Know about Inequality that Economists Don't
Decades before today's economists reached their conclusions based on complex models that only more or less have anything to do with real life, Harry S. Truman observed, “An economist is a man who wears a watch chain with a Phi Beta Kappa key at one end and no watch at the other.”12 The Federal Reserve and the economists on which it relies have been clutching fancy chains, but most Americans know what economic time it is and many are not the least bit happy about it.
Americans once proudly thought – and many economists still believe – that the US is a middle-class nation. However, the middle class has been hollowed out. Now the US consists of a large majority of folks barely getting by plus a tiny sliver of wealthy households.13 In fact, just three Americans – Bill Gates, Jeff Bezos, and Warren Buffett – own more of the nation's financial wealth than the bottom half of the country combined.14 Even what's left of the middle class isn't what it was – 23 percent of families that are still considered middle class skipped medical treatments they could no longer afford even before the COVID crisis left many more Americans without employer-provided health insurance.15 Despite sharp spikes in the cost of medical and child care, education, and housing, middle-class median income in inflation-adjusted terms was about the same in 2019 as 2001.16
In fact, income inequality in 2019 was even worse in the US than it was during the Great Depression.17 Reflecting this, 37 percent of the US was at grave financial risk after only a $400 unexpected expense.18 Clearly, unexpected expenses poured down in waves after COVID hit, increasing the percentage of Americans who couldn't pay their monthly bills in full by 12.5 percent between just late 2019 and April 2020.19
The younger you are, the worse it gets. In the “theft of a decade” characterizing the years after 2008 for younger citizens, Americans entering the workforce were mired in student debt, struggled to find jobs, and generally owned nothing more than a car that they could call their own.20 In 2019, the average net worth of millennials was still just $8,000, far less than earlier generations at their age.21 When COVID hit millennials yet again, some called them the “unluckiest generation ever.”22 This might not be historically true, but anger across the entire US political spectrum tells us that it's how millions feel. Even relatively wealthy Americans said that their financial position was a cause of acute stress, and that was before COVID.23
Cut these data down to see how African Americans and Hispanics are doing and one sees still sharper divides – racial economic-equality disparities are as bad as they were before the civil rights era promised Black Americans a better, fairer deal. There is now a bigger homeownership gap between Black and white Americans than before 1968, when critical fair-housing legislation was first signed into law.24 In 2016, white household average wealth was seven times that of Black households and five times that of Hispanics.25
The Economic-Recovery Mirage
The Federal Reserve touted a robust US economy starting in 201526 and then up to and even after COVID hit in March 2020.27 President Trump cited stock prices, gross domestic product (GDP), and “record” employment numbers when it suited him. When it didn't, he blamed the Fed, arguing that big economic gains on all of these counts would have continued were it not for a miserly central bank or, after COVID, unduly cautious public-health officials. Mr. Trump had a far better sense of the electorate's mood and how to move it than the Fed. But each of their statements nonetheless portrayed a prosperity remote from the lives of many, including large percentages of those who voted for Donald Trump in 2016.
The Fed and President Trump make the same mistake: they measure the economy by across-the-board indicators. Most of these matter only to the wealthiest Americans who own most of the assets in the stock and bond market. Unemployment may have looked as if it was at record-breaking lows before the pandemic, but that's only if you ignore labor-participation rates, which also show who wants to work or work more. At the height of the seeming boom in 2019, one-third of Americans reported that they were not working as much as they wanted. This is a far more telling number than the aggregate employment dot on the Fed's chart. It proves just how many Americans struggled. Indeed, even this number underestimates the struggle – far more Americans worked more jobs and/or more hours than ever before in late 2019, but their wages barely budged.28
From 1989 to 2018, middle-class, real (i.e., inflation-adjusted) wealth increased about 1 percent a year;29 over the same period, real gross domestic product went up about 2.5 percent a year.30 Clearly, someone was getting a lot richer as the US economy prospered, but it was not the middle class.
It's not just numbers that obscure the economic reality confronting most Americans. Many economists also firmly believe that capitalism ensures that those who try are those who win. For economists, this conclusion is cloaked in “efficient market” theory – that is, markets reward skill and talent. Conservative politicians concur, but also believe that wealth accumulated ultimately trickles down to lower-income workers, who then get their chance to compete for capitalism's rewards. Some have even said that it's not actually all that bad that almost 40 percent of Americans can't handle a $400 expense since most of them have friends or willing creditors.31 It goes unsaid that such assistance impoverishes families and loads them down with debt in an endless, debilitating cycle of deepening impoverishment.
Some go beyond aggregate data or supply-side theory to say that America is only unequal because a lot of Americans are indolent, sometimes renewing
