Global Journal of Human Social Science, E: Economics, Volume 21 Issue 4

The gains have been particularly robust at the top of the distribution, namely within the top 0.01% of US households. In a neoliberal economic system, economic power translates into political power (e.g., Citizen’s United, et al). As the Supreme Court justice Louis Brandeis clearly stated in the early 20 th century: “ We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both.” 11 An examination of incomes over the past forty years likewise reveals increased concentration. The incomes of the bottom half of U.S. households (B-50) have fallen from close to 20% of total income in 1982 to slightly more than 12% in 2014. The share going to the top 1% of households (T-1) has increased from 11% to 20%. If the share going to the bottom 50% of households had remained stable at 20%, on average a household in that group would have earned more than $25,000 in 2014, as opposed to the $16,200 they actually earned. And median wage earners (M-20 or from 40% to 60%), according to Mishel and Bevins (2021), would have earned $20,696 more than the $48,852 they actually earned in 2017, which would have reduced their need to borrow. Volume XXI Issue IV Version I 9 ( E ) Global Journal of Human Social Science - Year 2021 © 2021 Global Journals Transforming Financialization and Inequality in a Post-Covid World The redistribution of income from the bottom to the top has implications for growth in aggregate demand. The top 10% of U.S. households tend to save a significant portion of their income, while the bottom 80% spend virtually all of theirs. So when income is reallocated to the top, it creates new pools of savings. Tax cuts for the wealthy have had similar implications, meaning that there are massive pools of capital that have accumulated and are looking for a home. At least a portion of this “wealth” has found its home in the financial markets, which have fueled rising inequality. Importantly, this shift has not stimulated productive growth, job creation, R&D, etc. IV. F inancialization and the F ed The Federal Reserve has fostered financialization in four ways: (1) The Fed strongly supported financial innovation and deregulation under Alan Greenspan. Paul Volcker, who preceded Greenspan as Fed chair, had a healthy skepticism as to deregulation. Toward the end of his life, Volcker commented that the most beneficial financial innovation he could think of was the ATM machine. The decision by the Reagan administration to appoint Greenspan as chair was partially driven by his support for free markets and deregulation (as an acolyte of Ayn Rand). In any case, both political parties supported the shift to deregulation. 11 The wealth of three people in the United States is now more than the amount held by the bottom 50% of U.S. households, a staggering statistic that underscores Brandeis’s point. (2) The Fed utilized an asymmetric monetary policy under Greenspan that persists today. To some extent, monetary policy has been forced to respond to the impact of deregulation, given that the “herd” of financial market participants are far more of a threat to financial stability than they were prior to deregulation. The “Fed Put” results in the Fed cutting short-term interest rates whenever growth slows, or asset prices fall; this provides a movable floor to asset valuations. However, in the reverse Source: Piketty, Saez and Zucman (2018) Figure 5