Do Recoveries Belong To The Rich?

There is a debate among economists about the merits of quantitative easing, by which it is meant the practice of increasing the size of a central bank's balance sheet.

This is done to augment monetary easing, in a time when nominal interest rates are approaching or at the zero bound. Some economists criticize quantitative easing because it exacerbates the between the rich and the poor.

This Great Graphic was posted by The Economist recently. It is based on new research by two economists (Emmanuel Saez, from the University of California, Berkeley, and Thomas Piketty, from the Paris School of Economics). The research confirms what is already widely known: the rich have gotten richer during the recovery since 2009.

Specifically, Saez and Piketty's research shows that the top 1% enjoyed real income growth by nearly a third between 2009 and 2012. The share of national income commanded by the top 1% stood at a record high of 19.3% last year, edging out both 2007 and 1929. The bottom 99% saw their income growth less than 1%.


Yet, in both the Clinton and Bush recoveries (expansions after recessions), the income of the top 1% rose considerably more than incomes of the 99%. What makes the income story of the QE-recovery unique, therefore, is not that the rich have commanded the lion's share of the income gains, but the muted income gains overall. The bottom 90% actually experiencing a loss of income.

Economic contractions are associated with declines in income inequality. Just as it is silly for those of us concerned about income inequality to favor recessions because they reduce inequality, to blame QE for the increased income inequality in the US seems to be disingenuous. Income equality was increasing before the Great Recession. The Great Recession interrupted that process, but it resumed when the recession ended.

The forces driving income equality will not lessen simply because QE3 is not QE-infinity, and will have to slow and then stop at some point. Despite cries of socialism and financial repression, the rules of the game favor accumulation and, to those that have, is given.