Engine of Inequality. Karen Petrou

to many Americans. Here, as with overall American equality, the president was mistaken. As I said, African Americans are often now worse off than before the “Great Society” of the 1960s and subsequent anti-discrimination laws presumably afforded fair and free access to financial services.³⁶ In 2016, the average wealth of white households ($933,700) was seven times the average wealth of Black households ($138,200) and five times that of Hispanic households ($191,200).³⁷ In 2017, Black household median income ($38,183) was less than two-thirds that of median white households, with about one-third of Black households earning less than $25,000 compared to only 18 percent of white households.³⁸

Before COVID, only 41 percent of Black households owned their own homes, the lowest rate since the 1960s.³⁹ White homeownership was below its highs, but still stood then at 73 percent.⁴⁰

As of June 2019,⁴¹ white Americans owned 85 percent of US household wealth. That of African Americans was 4.4 percent. Hispanic wealth share was 3.2 percent, and others held 7.4 percent. To put this into context, non-Hispanic whites were only 60.4 percent of the US population at the time.⁴² In terms of hard cash, whites held $91 trillion; Blacks owned $4.7 trillion.

A qualitative view of racial equality comes from the Urban League, a US advocacy group. Its “Equality Index” assigns ratings based on economic and qualitative factors. In its most recent analysis,⁴³ African Americans had an index of 72.5 percent versus the benchmark 100 granted to whites; the Hispanic index was 79.3 percent.

These inequality data are depressing enough, but they still do not show the real extent of underlying income and wealth distribution. A French scholar, François Bourguignon, has developed an interesting concept: intangible economic equality.⁴⁴ He styles this the “inequality of opportunity.” This covers inequities not captured by bottom-line data because results on income and wealth may seem the same, but be substantively different due to household circumstance. For example, differences in the way a family might grow its income – getting one large pay raise versus working twice as hard – do not show up in total household labor income data. Similarly, wealth from inheritance has different market, social-welfare, and policy effects than wealth derived from one's own invention. Housing may seem available and affordable based on aggregate loan balances and costs. However, inequality occurs if the home is purchased in an undesirable neighborhood with poor schools or at a significant distance from the place of employment. As I will show later on, the Federal Reserve and US bank regulators often rely on averages or bottom-line totals to assess policy results, a methodology that masks unintended effects on shared prosperity in the glow of how well the overall system seems to be doing.

The Most Inclusive Ever?

Having addressed President Trump's assertion that America now is awash with shared income and wealth that knows neither race nor color, let's see if the US is, as he also says, the most inclusive in the world.

In the most recent global-equality analysis,⁴⁵ the Middle East was again the most unequal part of the world due to decades of tribal and similar wealth-distribution practices. Russia and China interestingly became strikingly more unequal as their communist past has faded into capitalist-oligopolistic wealth distribution. In Russia, the ratio between private wealth and national income grew three times as the state economic regime changed; in China, this ratio actually quadrupled even though overall wages in China also grew dramatically for lower-income workers.⁴⁶ Although overall global inequality has gone down slightly, the very top of the income distribution in emerging economies still receives far more of growing national income than most of the rest of the population. In many nations, the very top and the lowest income groups gained share, but what was once the middle class is as hollowed out as that in the US.

From the US perspective, the most interesting aspect of the global data is the divergence between Western Europe and the US. Although both were about equal from 1950 to 1980, the income divide has grown dramatically and differently ever since.⁴⁷ As Figure 2.1 shows, in 1980, the top 1 percent in both regions controlled about 10 percent of income. By the latest data from 2016, the 1 percent's share in Western Europe was 12 percent. In the US, it was 20 percent.

      Look below the numbers and it's even clearer how much of a difference policy decisions make to equality results. Western European nations are institutionally structured to ensure equality to the greatest extent possible through higher taxes, universal health care, inexpensive higher education, and generous state retirement benefits – just to mention a few equality-policy distinctions. Critics counter that these same policies constrain growth and, in the most recent period, innovation. However, US economic growth was at best lackluster before COVID and the “full” employment about which the Fed was wont to brag was in fact far less impressive when labor-participation rates and other factors are carefully considered.

Figure 2.1 Diverging Income Inequality: Changes to Income Distribution 1980-2016, U.S. vs. Western Europe

      Source: WID.world (2017).

Labor-participation rates measure not who has a job, but who wants a full-time job but has yet to find one. This rate has declined over the past twenty years, a sharp contrast to other industrialized nations in which men and women between 25 and 54 steadily joined the workforce.⁴⁸ Also, having a job is no guarantee that the job is good enough to ensure household sustenance – in late 2019, nearly one in five Americans had a job but still wanted and many also needed to work more to make ends meet.⁴⁹

All told, Western Europe remains more equal than the US even if one gives the US the benefit of the doubt due to somewhat greater growth and employment since the great financial crisis and overlooks the enormous macroeconomic cost of COVID that reversed all these gains in as little as two weeks. And, no matter all the cost to high-income households of all its equality and social mobility, Sweden still had more billionaires as a percentage of its population than the US.⁵⁰

The Great Financial Crisis and Its Equality Aftermath

      I have already established that the US is not only far less equal than President Trump said or many of us would like, but also on a downward trajectory that sharply differentiates America from many advanced democratic nations. However, this downward trajectory took a dive not during the 2008 Great Financial Crisis – when it might have been expected – but after 2010 when post-crisis financial policy kicked in. We shall see later why this was so and how financial policy made us so much more unequal so much faster than underlying trends would have forced. Now, I show that it was so.

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