Yellen ‘Greatly’ Concerned by Widening U.S InequalityJeff Kearns and Christopher Condon
Janet Yellen thrust the Federal Reserve into the debate on inequality in America, deploring what she said were the biggest increases in disparities of wealth and incomes since the 19th century.
“The past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” Fed Chair Yellen said today in a speech in Boston. “It is appropriate to ask whether this trend is compatible with values rooted in our nation’s history.”
Yellen has often spoken about need to keep holding interest rates at zero, where they have been since 2008, to put more Americans back to work. While she didn’t talk about the economic outlook or monetary policy, the comments reflect her concern over the lingering hardship caused by the 18-month recession that ended in June 2009.
“Inequality is not a natural territory for the Fed so it’s interesting to see Yellen is focused on that,” said Thomas Costerg, an economist at Standard Chartered Plc in New York. “She has an inclination to help the last guy out there who’s unemployed, and she’s clearly going to do all she can do. There’s a strong view that the Fed can help.”
Yellen, 68, cited the Fed’s Survey of Consumer Finances, which shows that the lower half of U.S. households by wealth held 1 percent of the total last year, while the wealthiest 5 percent held 63 percent.
In her speech at a Boston Fed conference on economic inequality, Yellen didn’t offer specific policy prescriptions, while highlighting four “building blocks of opportunity” that could help narrow the gap: business ownership, inheritances, affordable higher education and resources for children.
Yellen yesterday toured a community development center in the once-bankrupt city of Chelsea, Massachusetts, to hear first-hand how much of the economic recovery had trickled down to poorer families.
The Fed chief’s Boston trip is her second since becoming chair in February that she has used to focus attention on those who have been left behind after five years of economic expansion.
In March, she told a community development conference in Chicago the Fed hadn’t done enough to combat unemployment and cited local residents who have struggled with joblessness.
Rising inequality has grown as a political issue as U.S. voters head to the polls next month in election contests that may shift control of the Senate from Democrats to Republicans. Average wage gains have barely kept pace with inflation over the last five years.
Since the current version of the Fed survey began in 1989, it has shown “a rise in the concentration of income in the top few percent of households,” Yellen said.
Average income for the top 5 percent of households grew 38 percent from 1989 to 2013, compared with an increase of less than 10 percent for all others, Yellen said. Wealth distribution is more unequal than income, and Fed data show that the wealth gap has grown more than income inequality.
Yellen said economic mobility in the U.S. is lower than in many other wealthy nations, and a major reason is that it’s one of the few advanced economies that doesn’t pay for primary and secondary public education through national taxes.
“Half of U.S. public school funding comes from local property taxes, a much higher share than in other advanced countries,” which means inequalities in housing wealth and income “enhance the ability of more-affluent school districts to spend more on public schools,” Yellen said.
While higher education gives graduates median earnings 79 percent higher than those with high school degrees, most students and families “are having a harder time affording college,” Yellen said. She said college costs rising faster than income “have become especially burdensome for households in the bottom half of the earnings distribution,” while student loan debt has quadrupled since 2004 to $1.1 trillion.
“Higher education has been and remains a potent source of economic opportunity in America,” Yellen said. “But I fear the large and growing burden of paying for it may make it harder for many young people to take advantage of the opportunity higher education offers.”
Businesses and inheritances “are less concentrated and more broadly distributed than other forms of wealth, and there is some basis for thinking that they may also play a role in providing economic opportunities to a considerable number of families below the top,” Yellen said.
Wealth inequality has been the subject of increased debate since the publication of French economist Thomas Piketty’s best-seller, “Capital in the Twenty-First Century.” In it, he argues returns on capital have outpaced economic growth over the past 30 to 40 years, leading to greater wealth disparities.
Yellen said it’s likely “large inheritances play a role in the fairly limited intergenerational mobility that I described earlier,” citing Piketty’s book in a text footnote.