They found that the role of higher inequality was far more important than the role of demographics.
High-income earners did not raise their savings rates. Rather, they were winning a larger part of the economic pie. Researchers have calculated that the proportion of income in the top 10% of income earners has risen from about 30% in the early 1970s to more than 45% in recent years.
High-income earners earn more, and thus save more, resulting in additional savings of trillions of dollars over the years. It accounts for 30% to 40% of personal savings from 1995 to 2019.
So whatever the cause of the widening income inequality, it’s probably a combination of technological changes, weakening unions, globalization, tax changes, and winner-dominated market dynamics, but it’s a force of movement. As a result, those assets are accumulated. The value of wealthy people is skyrocketing.
“As the rich get richer in terms of income, it creates a savings glut,” said Professor Mian. “Excessive savings force us to lower interest rates, which makes the rich even wealthier. Inequality creates inequality. It’s a vicious circle and we’re stuck in it.”
Their treatise was not definitive, and other economists at the symposium pointed out some issues. For example, the decline in the natural rate of interest is a global phenomenon, occurring in countries with different trends in income inequality than in the United States. state. Harvard economist Jason Farman also said that inequality has grown the most in the years prior to 2000, with the natural rate of interest declining most of the time since then.
However, the Fed and other central banks around the world are in a difficult situation, regardless of how strong income inequality is, which drives low interest rates, high asset prices and wealth inequality.
“These forces pushing down r-stars were probably so powerful that the Fed couldn’t fight them,” Sufi said in an email.