2019-08-05_Bloomberg_Businessweek-Europe_Edition

◼ ECONOMICS Bloomberg Businessweek August5, 2019

29

Age of Extremes

U.S. economic growth has slowed as inequality has increased. Of the world’s major

developedeconomies,theU.S.is amongthemostunequal.

Center for Equitable Growth, a nonprofit research
group in Washington. “That has been changing over
the past half-century and closing off opportunity.”
While the U.S. economy bounced back faster
from the 2008 crisis than Europe’s and Japan’s,
Boushey points out that gross domestic product is
an aggregate measure and says nothing about “the
very different experience across income groups.”
Many economists say inequality is one reason the
recovery has been lackluster by the U.S.’s own past
standards. Rich people spend a smaller proportion
of their income on goods and services than average
folks do. They’re more likely to invest their money
or sock it into savings, which is one reason stock
prices are so high and interest rates so low.
“Youhavetoask,‘Whyhastheexpansionbeen
soweakandsoslow?’Andmaybetheansweris
inequality,”saysTorstenSlok,chiefeconomistat
DeutscheBankinNewYork.“Thewealtheffect
thatwassupposedtogeneratea strongerexpan-
sion,well,if it’sheldbyjustonesideofManhattan,
thenit’snota surpriseif youhaveslowerconsump-
tionandgrowth.”
Toarrestthefinancialmeltdownthatbeganin
2008 andgeteconomiesgrowingagain,theFedlow-
eredinterestratesdrasticallyandboughttrillionsof
dollarsinsecurities.Thatpumpedupassetprices—
andthewealthyhavebenefitedthemost.Therichest
1%ofAmericansownabouthalfthestockmarket.
Meanwhile,wageshaven’trisenmuchevenas
unemploymenthasplungedtorecordlows.That’s
a conundrumthat’sperplexedeconomistsand
policymakers,includingthoseattheFed.Only
lateinthedecade-longreboundhaspaystarted
topickup,asFedChairmanJeromePowelltold
CongressinJuly.“Thebenefitsofa strongjob
markethavebeenmorewidelysharedinrecent
years,”hesaid.“Indeed,wagegainshavebeen
greaterforlower-skilledworkers.”
Thequarter-point interest-ratecutthe Fed
announcedonJuly 31 mayhelpextendthegains.
Still,there’sa growingconsensusaroundtheworld
thatmonetarypolicyhaslostmuchofitspotency,
andthatgovernmentswillincreasinglyneedto
resorttobudgetspendingtoshoreupfalteringecon-
omies.Kapuragrees.Comparedwithcheapmoney,
hesays,fiscalstimulusisgenerally “more friendly to
the average person than the plutonomist.”
The resulting rise in government spending and
debt will likely hurt bonds and rate-sensitive equi-
ties such as utilities, Kapur and two Merrill col-
leagues wrote in April. Their report examined
“peak plutonomy” and other global megatrends,
including rising nationalism and a fading belief in
economic orthodoxy. (Defense and entertainment

stocks were tipped to be amongthewinners,in

case you’re wondering.)

History shows that inequality is driven by pow-

erful forces that are hard to reverse and often leads

to disruption and violence, Kapur says. But he sees

signs that the U.S. is moving toward addressing the

problem through elections and legislation—like it did

in the 1930s. “Out there in the political realm, the 1%,

the 10%—it’s part of the conversation,” he said. “The

antagonism toward plutonomy has spread.” �Katia

Dmitrieva,withAlexTanzi

THE BOTTOM LINE The U.S. Census Bureau’s gauge of income

disparity is the highest since record-keeping began in the 1960s.

Inequality may be one reason the recovery has been lackluster.

Artsy Colleges

Just Won’t Die

● Even in a tough higher-ed market, few schools

ever go out of business

Like leg warmers and mullets, Bennington College

seemed a candidate for oblivion a generation

ago. Tucked away at the foot of Vermont’s Green

Mountains, the school has long shined in the now-

out-of-fashionhumanities.Itsfamousalumniinclude

writersDonnaTarttandBretEastonEllis,not

hoodie-wearing tech billionaires. The college, which

charges $73,000 a year, almost closed its doors in the

1990s and was still struggling earlier this decade.

GDP growth rate (10-year average) Gini inequality index* World Gini values as of

the most recent year

U.S.0.42

Australia0.36

Canada0.34

U.K.0.33

France0.33

Japan0.32

Germany0.32

Sweden0.29

DATA:WORLDBANK,GINIBUREAUINDEXSCALE IS 0-1, WHERE 0 IS PERFECT EQUALITYOF ECONOMIC AFFAIRS; FEDERAL RESERVE

4%

3

2

1

0

1979 2018

0.42

0.35