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The Bottom 90% of Americans Are Borrowing From the Top 1%

The savings of the rich are recycled into household and government debt.

California Cities Top The List Of America's Richest Zip Codes
Photographer: David Paul Morris/Bloomberg

We know three things about the U.S. economy: The rich are getting richer, everyone else is in debt, and interest rates have fallen. Is there a connection? Yes, and the link has implications for fiscal and monetary policy.

By forcing interest rates down, extreme wealth inequality pushes the U.S. economy toward a “debt trap” that’s hard to escape with conventional macroeconomic tools, write Atif Mian of Princeton, Ludwig Straub of Harvard, and Amir Sufi of the University of Chicago in an important paper that came out earlier this year, titled “Indebted Demand.” They advocate unconventional measures such as redistributive tax policies that narrow the gap between rich and poor.