Top 1% Of U.S. Households Hold 15 Times More Wealth Than Bottom 50% Combined

We know three things about the U.S. economy: The rich are getting richer, everyone else is in debt, and interest rates have fallen. Is there a connection? Yes, and the link has implications for fiscal and monetary policy.

By forcing interest rates down, extreme wealth inequality pushes the U.S. economy toward a “debt trap” that’s hard to escape with conventional macroeconomic tools, write Atif Mian of Princeton, Ludwig Straub of Harvard, and Amir Sufi of the University of Chicago in an important paper that came out earlier this year, titled “Indebted Demand.” They advocate unconventional measures such as redistributive tax policies that narrow the gap between rich and poor.

the difference in annual income between the top 1% and the bottom 99% in 2017

The paper is in the same vein as work by former Federal Reserve Chairman Ben Bernanke, who publicized the concept of a global savings glut, and former Treasury Secretary Lawrence Summers, who revived the Depression-era notion of secular stagnation. Mian, Straub, and Sufi’s contribution is the theory of indebted demand, which they write is “the idea that large debt burdens lower aggregate demand, and thus the natural rate of interest.”

Here’s their concept: The rich can’t possibly spend everything they earn, so they save a lot. In theory, those savings can be recycled into productive investment, but in practice, a lot of the money finances borrowing—i.e., dissaving—by people farther down the income ladder. “A substantial amount of borrowing by households in the bottom 90% of the wealth distribution was financed through the accumulation of financial assets by the top 1%,” the economists write, citing their own prior work.

The lending from rich to poor can be indirect. For example, let’s say a rich person buys shares issued by a company. The company stashes the proceeds in a bank. The bank in turn makes a loan to a non-rich person to buy a car or a house. The borrowers have a higher propensity to spend than the lenders, but they have less money to spend because part of their income goes to debt service. 

The excess of desired savings over desired investment pushes interest rates down and down until the effective lower bound of around zero. Rates can’t get much below zero because savers won’t tolerate it—they’d rather put their money under a mattress than earn a negative return on it.

Any policy that attempts to fix things by encouraging more borrowing makes things better in the short run but worse in the long run by saddling the private or government borrowers with even more debts that will eventually have to be repaid, the economists write. 

That’s why they favor redistribution through income or wealth taxes, which would increase the spending power of 90%. “One-time debt forgiveness policies can also lift the economy out of the debt trap, but need to be combined with other policies, such as macroprudential ones, to prevent a return to the debt trap over time,” they write.

Not everyone agrees, of course. An article about the research in the latest issue of the Chicago Booth Review, a publication of the University of Chicago’s Booth School of Business, quotes Booth’s Steven Kaplan as saying that wealth taxation was tried unsuccessfully in Europe. Kaplan also tells the publication that wealth inequality had been shrinking before the pandemic struck.

Chicago’s Sufi responds in the article: “Any decline in inequality from 2017 to 2019 was tiny compared with the rise in inequality since the 1980s, and the Covid-19 crisis will almost assuredly amplify inequality going forward.”

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Best Airline Credit Cards

The fastest and most comfortable travel is through airline but the ticket prices are too high. We can go to the same place more than thrice through other means of travel using the same money. sometimes. But for some people, it’s usual for them to travel by airline. If you belong to this category or you want same your money. Whenever you are traveling these are some of the best credit cards where you can get great discounts. Travel tickets or coupons which you can use for various purposes.

The Chase Sapphire Preferred Card

The Chase Sapphire Preferred Card is one of the most well-known travel rewards Visas available. Offering a magnificent profit from movement and feasting buys, the card packs a huge load of significant worth. Cardholders can recover focuses at 1.25 pennies each for movement booked through Chase. Or move focuses to one of Chase’s 13 important carriers and inn accomplices. You’ll procure 2x Ultimate Rewards focuses on movement and 3x Ultimate Rewards focuses on eating including qualified conveyance administrations and takeout. The current sign-up reward on this card is very liberal. TPG esteems it at $1,100.

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Ink Business Preferred Card

Ink business Mastercard offers 3x focuses on airfare and all the other things Chase remembers for its movement grouping. You likewise get 3x focuses on all delivery buys; web, link, and telephone administrations; and promoting buys made with online media locales and web crawlers. Note that the 3x procuring rate applies to the first $150,000 spent in quite a while across those classifications. You’ll likewise procure 1 point for every dollar on any remaining buys. If you reclaim those focuses for movement in the Chase Ultimate Rewards gateway, you’ll get 25% more incentive for them, in addition, you can move your focus to 10 aircraft and three inn dependability programs at a 1:1 proportion.

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Southwest Rapid Rewards Priority Credit Card

Given its advantages and credits, the Priority card, which is co-market with Chase. Offers the best worth among Southwest Rapid Rewards cards. With up to a 100,000-degree invite reward, an award pace of 1x to 3x focuses and a $75 yearly Southwest travel credit, this card pays for itself decently fast. The Southwest Rapid Rewards Priority card offers 3x focuses on Southwest buys, 2x focuses on neighborhood travel and…

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