By how much did Quantitative Easing worsen income inequality in the US?
According to Gerald Epstein, co-director of PERI and Professor of Economics, probably not by as much as you think.
Sharmini Peries conducted a recent ~9:00 minute interview with Professor Epstein for TRNN:
"It has been a year since the Federal Reserve ended its policy of quantitative easing.
This is where the Federal Reserve bought up over $4 trillion in financial assets of the big banks following the onset of the great recession. What do we know about the effects of this policy and the impact it has had on us in the U.S.? Joining me now to discuss all of this is Prof. Jerry Epstein..."
"PERIES: So Jerry, did quantitative easing increase income inequality?
"EPSTEIN: Yes, it probably did. But not probably by quite as much as some of the strongest critics have suggested. You know, there's a big debate now among economists and politicians and others about the effects of quantitative easing.
"And even though it ended over a year ago, as you said, it's still a big debate because the Federal Reserve has still, as you know, continued to keep interest rates down at zero..."
"PERIES: So you mentioned earlier that it had a modestly dis-equalizing effect despite of having equalizing changes to, say, employment or mortgage financing. Explain that a little bit more, the different effects it has had.
"EPSTEIN: Right. So the debate is--some people say, look, the Federal Reserve, as I just said, they buy up all these financial assets, and that increases the value of these assets.
"And who owns the assets?
"Well, it's well known that it's primarily the 1 percent, and the 0.01 percent of the income and wealth distribution that own most of the financial wealth.
"So by definition, when the Federal Reserve is doing something, printing money to buy financial assets, driving up their prices, that's going to immediately help the rich and the banks that own these assets first. And in fact that's what we found out, by looking at these data.
"However, as Ben Bernanke and Janet Yellen and other economists have argued, that's not the only effect. In fact, various channels through which this quantitative easing can affect people in the economy.
"As you said, it can also, lower interest rates generate more investment and employment.
"Another thing it can do is lower refinancing costs for people who have home mortgages or student loans.
"That can help people in debt, who are typically people in the middle or lower end of the income distribution.
"But on the other side it can also lower interest rates for savers. People who have money in the checking and savings account, which tend to be more middle class people. So their returns on those kinds of investments go down.
"So the real thing that's difficult and that we tried to do was to, how do you balance off all of these impacts? How do you estimate these countervailing impacts? So what we found was that overall, equity prices went up significantly, and did help the wealthy significantly..."
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