Just heard Fed chair Janet Yellen give this great talk on inequality of wealth, income, and importantly, opportunity. I’ll have more to say later, but do give this a read.
Some points that jumped out to me:
–It’s fundamentally important that she gave this speech, as it was when President Obama gave a speech elevating inequality as a serious challenge. The Federal Reserve is of course focused by mandate on employment and inflation, but of course inequality of opportunity is linked to economic conditions. In fact, while I thought her speech was excellent, Chair Yellen could have hit harder on this point, as I note below.
–While many of her slides will be familiar to those who follow the issue, figure 10 (below) packs in a lot of information about this issue of inequality of opportunity. It shows the inequality of debt associated with higher education by wealth class. It’s unequal, of course, but has become considerably more so over time. We also see the stable and low debt burden of the top 5%.
I’m reminded of another finding here that poor kids with high cognitive test scores in 8th grade have about the same college completion rates of low-scoring rich kids.
–Chair Yellen stressed four “…sources of economic opportunity in America–think of them as “building blocks” for the gains in income and wealth that most Americans hope are within reach of those who strive for them. The first two are widely recognized as important sources of opportunity: resources available for children and affordable higher education. The second two may come as more of a surprise: business ownership and inheritances.”
First, I must say: where’s the macroeconomy here? Where’s full employment? I recognize that we’re talking about long-term trends across the life-cycle, but surely there’s a chain of reactions between tight labor markets, more broadly shared economic gains, and greater opportunity. These opportunity dynamics are complex with lots of moving parts, but it’s not a coincidence that inequality’s growth was quiescent during the post-war decades of full employment.
Second, especially given r>g Piketty-style dynamics, I’m not sure how much traction there is in terms of increasing opportunity for those on the wrong side of the inequality equation through inheritances and business ownership.
Still, even if she didn’t make all the connections I might have liked, it’s a great advance for the chair of the Fed to take such a deep dive into these inequality issues. And while I would have liked Chair Yellen to more closely tie full employment to the inequality of both outcomes and opportunities, the fact is that she’s fighting hard to keep the focus on the remaining slack in the job market is what matters most.
No questions, these are tough times for economies across the globe but we’re lucky to have such a great Fed chair.