Paper – Inequality, the Great Recession, and Slow Recovery

by Sabrina I. Pacifici on January 25, 2014

Inequality, the Great Recession, and Slow Recovery. Barry Z. Cynamon and Steven M. Fazzari. November 20, 2013

“Rising inequality reduced income growth for the bottom 95% of the income distribution beginning around 1980, but that group’s consumption growth did not fall proportionally. Instead, lower saving put the bottom 95% on an unsustainable financial path that eventually triggered the Great Recession. An original decomposition of consumption and saving across income groups shows that the consumption-income ratio of the bottom 95% fell sharply in the recession,  consistent with tighter borrowing constraints. The top 5% ratio rose, consistent with consumption smoothing. In the recession’s aftermath, the inability of the bottom 95% to generate adequate demand helps explain the slow recovery.”

Previous post:

Next post: