Janet Yellen gave a speech last week that was unusual for a sitting chair of the Federal Reserve, though it doesn’t seem to have gotten much notice apart from Fed watchers and liberals cursed with wishful thinking. That’s a shame.
Her topic was economic inequality. Her audience was a conference held by the Federal Reserve Bank of Boston on “Economic Inequality and Inequality.”
Here is the spiciest bit:
“By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then. It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity.”
I know, I know: this is not very spicy. But according to connoisseurs of the rhetoric of reserve banking, this paragraph was three-alarm chili sauce.
Apparently it is not unheard of for a Fed chair to discuss a primarily moral political issue.
“But Yellen’s speech is surely the first time a Fed chief has pointed out that rising inequality threatens America’s sense of itself, ” according to John Cassidy in The New Yorker.
In The New York Times, Neil Irwin said Yellen’s remarks may look bland, but, “By the cautious standards of central bankers, they are downright radical.” Irwin contrasts Yellen’s speech with this passage from a 2007 speech by her predecessor, Ben Bernanke:
“I will not draw any firm conclusions about the extent to which policy should attempt to offset inequality in economic outcomes; that determination inherently depends on values and social trade-offs and is thus properly left to the political process.”
Now, Yellen didn’t “draw any firm conclusions” either. She asked whether current levels of inequality, historically high as they are, are compatible with “values rooted in our nation's history.” She didn’t provide an answer.
But there was certainly was a strong implied one: No.
Yellen did not address one hotly debated issue: Is economic inequality itself a drag on economic growth? That would seem to be a relevant question for the Fed chief.
The rest of Yellen’s speech was a methodical presentation of new research by Federal Reserve economists about the distribution of income and wealth America. This itself is said to be an important new element to the political debate over inequality – to the extent there is one.
Most of the data used recently has come from economists Emmanuel Saez and Thomas Piketty and made semi-famous in Piketty’s surprise bestselling book, “Capital in the Twenty-First Century.” Now we have a new batch of data culled from the Fed’s triennial Survey of Consumer Finances.
Yellen revealed one important finding in her comments: inequality is still increasing.
Yellen also put the data in the context of economic justice in this way: Sometimes inequality increases when everyone’s income is going up, but faster for those at the very top. Sometimes inequality increases when those toward the bottom go down and the rest stay the same.
And sometimes economic inequality increase when the richer get richer and the rest get poorer. Each of those scenarios elicits different moral or political responses.
Yellen says we are currently in the third scenario. “Unfortunately, the past several decades of widening inequality has often involved stagnant or falling living standards for many families,” she said.
Here’s what that looks like:
From 1989 to 2013, the inflation-adjusted income of the top five percent of households grew by 38 percent; income grew by less than 10 percent for the other 95 percent.
The picture is uglier when you look at wealth instead of income. This chart looks at the shares of the country’s total net worth held by the top five percent, the middle 45 percent and the lowest 50 percent:
Half of all Americas, those below the middle, held just one percent of all household wealth by 2013. Those are pitchfork numbers.
What is most stunning about the material Yellen presented is not the huge and widening gap between the “1 percent” and the rest – or even the newly gargantuan wealth of the “1 percent.” It is how very little most Americans have.
Look at this:
Here's Yellen again to put some real numbers on that:
… the average net worth of the lower half of the distribution, representing 62 million households, was $11,000 in 2013.9 About one-fourth of these families reported zero wealth or negative net worth, and a significant fraction of those said they were "underwater" on their home mortgages, owing more than the value of the home. This $11,000 average is 50 percent lower than the average wealth of the lower half of families in 1989, adjusted for inflation.
Numbers like that are what led to President Obama’s briefly notorious declaration in December, 2013 that the lack of upward mobility and widening inequality are the “defining challenge of our time.”
That speech was delivered at a neighborhood facility in Washington, DC sponsored by a Democratic think tank. The administration has done little in the year since to take the debate over the “defining challenge” outside of DC and its think tanks.
Is Janet Yellen trying to spark a more sustained and serious response to the rise of inequality? The Fed, of course, doesn’t control or even directly address the key policy areas that effect inequality and economic opportunity: tax policy, education, welfare benefits and so forth.
Perhaps precisely because of that, Yellen can have an influence and authority that no mere politician can muster anymore.