Category - Monetary Policy/Federal Reserve

Ex-chair of the Fed, Alan Greenspan, was frequently criticized for throwing his weight around in favor of those whose economic position is based on owning financial capital, at the expense of the vast majority of the public. Congress loved everything about Greenspan and would have made him chair-for-life if they could, so it shouldn’t be terribly surprising that his replacement, Ben Bernanke, tends towards the same bias. Dean Baker paints a “hypothetical” scenario that would lead to just that conclusion. How else to explain why Bernanke would be so eager to smooth the rough waters of the financial markets? Aren’t they just natural expressions of the rational free-market system? To paraphrase Marilynne Robinson from one of her essays in Mother Country, if the markets are natural systems, like rivers, what obligation is there to flatten out the waterfalls and smooth over the rapids? The answer seems to be the obligations of class.

By Michael Ash, CPE Staff Economist

A recent finding from two researchers at the Federal Reserve Board implies that rich people did all of the extra consuming during the 1990s “boom.”

They reached their conclusion by looking at savings, the flip side of consuming. While the historic pattern has been that the rich save and the poor eat hand-to-mouth, the pattern of savings stratified by income class reversed over the past decade. The savings rate of high-income households declined very sharply, and the increased savings of the poor partly paid for the upper-class consumption spree.

The overall savings rate (savings as a percent of income) fell from 5.9 to 1.3 percent over the 1990s. Table 1 shows savings stratified by income class.

by Jonathan Teller-Elsberg, CPE Staff Economist

After eighteen years holding the reigns of power, Alan Greenspan has finally ended his career as chair of the Board of Governors of the U.S. Federal Reserve, as a result of legal limitations on the length of his term. As the person in charge of monetary policy in the U.S., Greenspan was, by some accounts, the single most powerful person in the world economy. His term as chair coincided with the early 1990s recession that contributed to George H. W. Bush’s loss to Bill Clinton; continued through the longest continuous period of economic growth in U.S. history; included the multi-billion dollar bailout of the Long-Term Capital Management hedge fund in 1998; persisted through the internet-inflated stock market boom and bust as the new century began; and has finished in the current period of feeble recovery.