The Engine of Inequality: The Fed and the Future of Wealth in America
Karen Petrou
Wiley (March 2021)

How to avoid “weak growth, high-risk finance, low wages, negative savings, and lost hope”

I agree with Karen Petrou that “US income and wealth inequality grew worse faster than ever before after 2010 due to the one thing that dramatically changed that year: the way the Federal Reserve set the monetary and regulatory policy…there is a clear and causal connection between financial policy and economic inequality and breaking it is desirable, feasible, politically achievable, and meaningful as a near-term equality remedy.” She explains HOW.  (Page 17)

Her recommendations include these:

o Recraft the US monetary policy so that it sets interest levels she calls “a living return” and retracts the Fed’s safety net from beneath financial markets;

o Execute a set of monetary-policy actions premised on an equality effect derived from ground-up Fed interventions, not top-down largesse;

o Open a “Family Financial Facility” that provides ground-up — not trickle-down — emergency economic support; and

o Redesign US financial regulations not by removing all the costly rules imposed on banks after 2010, “but instead by realigning rules so that like-kind financial activities come under like-kind rules.”

Petrou wrote this book in order to explain how to avoid “another decade of weak growth, high-risk finance, low wages, negative savings, and lost hope…Economic equality is absolutely essential for financial stability and, without financial stability, there is neither stable macroeconomic growth nor constructive social consensus.”

No brief commentary such as mine could possibly do full justice to the quality and value of her insights and counsel but I do hope I have indicated why I hold her and her work in such high regard. Avoiding or escaping the “Doom Loop” is an imperative.

If you disagree with Karen Petrou’s recommendations, fine. What do you suggest instead? I am grateful for sharing her thoughts and will welcome yours.