Wednesday, February 6, 2013

Joshua Wojnilower — Inequality Really Is Holding Back the Recovery

By disaggregating the data for gross private savings, the drivers behind the large fluctuations and trends become increasingly apparent. This data is consistent with rising income and wealth inequality but requires reversing Stiglitz’s “underconsumption” hypothesis. Trying to maintain relative consumption levels, many households clearly chose to rely on previous savings or new debt as a means of temporarily boosting consumption. As inequality continues to rise, wealthy households are now electing to retain more of their savings within corporations. It doesn’t take a leap of faith to suggest this combination of factors depresses aggregate demand.
Bubbles and Busts
Inequality Really Is Holding Back the Recovery
Joshua Wojnilower


5 comments:

Ryan Harris said...
This comment has been removed by the author.
Joshua Wojnilower said...

Ryan,

Sorry to disappoint you. I actually spent time also looking at the interest income data but couldn't figure out a good way to fit it into that post. Similarly I don't deny that this is related to sectoral balance, but felt that wasn't necessary to counter Krugman's claim or answer Art's question. If I were to expand this discussion further I would certainly include those aspects.

Ryan Harris said...

It is good article and solid analysis, I was just thinking as I read it that those things would connect the dots.

Joshua Wojnilower said...

Appreciate the comments and suggestions.

Joshua Wojnilower said...

Here's a follow up in which I address my previous omissions of interest income and sectoral balances.
(http://bubblesandbusts.blogspot.com/2013/02/the-rise-of-debt-interest-and-inequality.html)

Thanks for the suggestion Ryan.