How do economic crises affect inequality? In the past, inequality increased prior to economic crises, only to moderate during and after crisis periods. In the present crisis, many expected inequality to decline. Others, however, note that with job loss in the millions and unemployment above 10 percent, while investment bankers continue to rake in big bonuses inequality is on the rise.
A new study by researchers at the Minneapolis Fed and New York University tracks inequality in the U.S. since 1970 (via Mark Thoma). I find that while income inequality has increased during the crisis, consumption inequality has declined.
Recent evidence shows how the distribution of resources changes in recessions in complex ways.
- The bottom of the earnings distribution falls off substantially relative to the median, causing earnings inequality to increase in recessions.
- This increase is substantially mitigated by government and private transfers. This mitigating effect, together with the fact that households can use borrowing and lending to smooth income declines, causes the consumption distribution to typically move very little during recessions.
- The current recession appears somewhat unusual. So far, consumption inequality has declined sharply, perhaps because the consumption-rich have been disproportionately hurt by declining asset prices.
February 9th, 2010 at 7:13 pm
Hi Richard,
I guess I’m tired of the economic meltdown, screw-up, implosion, failure, disaster, next in size to the depression of 29, to be called a reset.
problem with reset, is that it is maybe from the computer world, like the little hole in the back of my router. when it won’t transmit anymore you stick a toothpick in and whoopy, with new password it goes again.
this event is not a reset, much bigger and more profound failure of the system. a reset won’t fix it, too many capacitors blown, circuits fried.
you do a disservice by applying such a silly term to this event. we can’t rebuild this thing or resume, with a simple reset to an existing old electronic gizzmo.
we have climate change, peak oil, the impossibility of continuous growth (china at 8%), and food supply risks all nipping at you, and you don’t notice, rather you go on with some sort of creative boutique, bohemian baffle gab.