Wealth Inequality, Precariousness, Household Debt, and Macroeconomic Instability

Abstract

U.S. wealth inequality has arisen alongside slow economic growth and more economic and financial instability. We consider how these factors are connected in this article. We draw on the existing literature, supplemented with data from the Federal Reserve’s Survey of Consumer Finances, the Federal Reserve’s Distributional Financial Accounts, and the U.S. Census Bureau’s Household Pulse Survey. We show that the United States experiences a vicious cycle of continued wealth inequality in the context of unequally distributed economic risks that impede savings by those who already have little wealth to begin with. The result are greater indebtedness and more widespread macroeconomic instability. These factors perpetuate wealth inequality and economic instability. The COVID-19 pandemic illustrated these linkages, but we highlight that the underlying trends have existed for decades. Breaking this cycle requires several policy steps to build reduce wealth inequality.