Nevertheless, it is clear that these two recessions were not only serious, but also the consequences that they had for inequality in the United States.
Although Depression was bigger and longer than the great recessiondecades after the Great Depression significantly reduced the wealth of the rich and increased the economic security of many workers. In contrast, the Great Recession exacerbated income inequality and wealth.
Some scholars this phenomenon is associated with a weakened labor movement, lesser protection for workers and a radical political right wing.
In our opinion, this account skips the dominance of Wall Street and financial sector and overlooks its fundamental role in creating economic inequality.
We are experts in Revenue differentiationand our new book "Divested: Inequality in the Age of Finance“Argues that inequality as a result of the recession is largely related to how the government developed its response.
Reforms during the Great Depression restructured financial system restricting banks from risky investments, Wall Street from gambling with household savings, and lenders from high or unpredictable interests.
New dealA number of government programs created after the Great Depression were based on a bottom-up approach and provided government resources directly to unemployed workers.
On the other hand, the regulatory policy after the financial crisis that began in 2008 was mainly aimed at restoring the financial order, which for decades directed resources from the rest of the economy to the top.
In other words, the recent recovery has been mainly focused on finances. Government incentives especially massive infusion of creditfirst went to the banks and large corporations, in the hope that credit will eventually leak to needy families.
It is commonly believed it was that banks knew how to make the best use of credit. And so as to stimulate the economic growthFed increased money supply to banks by purchasing treasury and mortgage-backed securities,
But the incentive did not work as the government intended. Banks give priority to their interests over the interests of the public. Instead of lending money to home buyers and small businesses at historically low interest rates, they deposited funds and waited for interest rates to rise.
Similarly, corporations did not use light credit to increase wages or create jobs. Rather, they lent buy your stock and directed profits to senior executives and shareholders.
As a result, the principle of “banks and corporations in the first place” led to an extremely unequal recovery.
Who lost in 2009?
The financial crisis destroyed almost three quarters of the financial sector's profits, but by mid-2009 the sector had fully recovered, as we examined in our book.
His profits continued to grow in subsequent years. By 2017, the sector amounted to 80% more than before financial crisisProfit growth was much slower in the non-financial sector.
Companies outside the financial sector were more profitable because they had fewer employees and lower salary costs. Payroll expenses fell 4% per recession and remained low during recovery.
The stock market fully recovered after the crisis of 2013the year when the unemployment rate reached 8%, and the delay in mortgage loans for one family still ranged above 10%.
Meanwhile, average family wealth has not yet recovered from a dive during the Great Recession.
The gap in racial wealth has also only widened. While the average welfare of all households fell by about 25% after the explosion of the real estate bubble, white households recovered much more rapidly.
By 2016, black households had about 30% less wealth than before the crashcompared to 14% for white families.
As the government is discussing incentive packageOfficials can either decide on an ongoing “manual” approach to first protect banks, corporations, and their investors with monetary incentives.
Or they can learn from the New Deal and bring government support directly to the most vulnerable communities and families.
We are entering a recession: what did we learn from the latter? (2020, March 20)
retrieved March 20, 2020
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