Engine of Inequality
The Fed and the Future of Wealth in America
1. Edition May 2021
288 Pages, Hardcover
Professional Book
Further versions
The first book to reveal how the Federal Reserve holds the key to making us more economically equal, written by an author with unparalleled expertise in the real world of financial policy
Following the 2008 financial crisis, the Federal Reserve's monetary policy placed much greater focus on stabilizing the market than on helping struggling Americans. As a result, the richest Americans got a lot richer while the middle class shrank and economic and wealth inequality skyrocketed. In Engine of Inequality, Karen Petrou offers pragmatic solutions for creating more inclusive monetary policy and equality-enhancing financial regulation as quickly and painlessly as possible.
Karen Petrou is a leading financial-policy analyst and consultant with unrivaled knowledge of what drives the decisions of federal officials and how big banks respond to financial policy in the real world. Instead of proposing legislation that would never pass Congress, the author provides an insider's look at politically plausible, high-impact financial policy fixes that will radically shift the equality balance. Offering an innovative, powerful, and highly practical solution for immediately turning around the enormous nationwide problem of economic inequality, this groundbreaking book:
* Presents practical ways America can and should tackle economic inequality with fast-acting results
* Provides revealing examples of exactly how bad economic inequality in America has become no matter how hard we all work
* Demonstrates that increasing inequality is disastrous for long-term economic growth, political action, and even personal happiness
* Explains why your bank's interest rates are still only a fraction of what they were even though the rich are getting richer than ever, faster than ever
* Reveals the dangers of FinTech and BigTech companies taking over banking
* Shows how Facebook wants to control even the dollars in your wallet
* Discusses who shares the blame for our economic inequality, including the Fed, regulators, Congress, and even economists
Engine of Inequality: The Fed and the Future of Wealth in America should be required reading for leaders, policymakers, regulators, media professionals, and all Americans wanting to ensure that the nation's financial policy will be a force for promoting economic equality.
About the Author xiii
Introduction xv
Chapter 1 Inequality: Why It's So Much Worse and What to Do About It 1
What We Know about Inequality that Economists Don't 4
The Economic-Recovery Mirage 5
Why So Unequal So Fast? 7
Regulatory Wreckage 12
How to Fix Financial Policy 14
Chapter 2 How Unequal Are We? 18
Economic Inequality Fundamentals 19
Who Has How Much 22
What of Wealth? 24
The Inequality Engine 24
Worse Than That 25
The Most Inclusive Ever? 27
The Great Financial Crisis and Its Equality Aftermath 29
Chapter 3 What Makes Us So Unequal 32
The Mechanical Engineering of Economic Inequality 34
Death and Taxes 35
The Role of Transfer Payments 37
A Supply-Side Solution? 38
Public Wealth: A Sputtering Part in the Equality Engine 39
Is Education the Answer? 41
Is Trade Policy a Problem? 42
Global Policy Reform? 43
What to Do? 45
Chapter 4 Why Does Economic Inequality Matter So Much? 46
Inequality and Mortality 47
Political Polarization 49
Inequality's Eviscerating Cost 50
Inequality and the Long Recession 52
Financial-Crisis Risk 53
Chapter 5 Following the Money 55
How Central Banks Work 57
The Modern Monetary-Policy Construct 60
The Fed's Bailout Buckets 62
The Fed's Payment Powers 64
Rules of the Financial Road 65
Four Fundamental Financial-Policy Flaws 69
Chapter 6 How Monetary Policy Made Most of Us Poorer 73
The Fed's Heavy Hand 76
Why It's the Fed's Fault 77
How Ultra-Low Interest Rates Made America Still Less Equal and QE Still More Inequitable 80
The High Cost of Low-Rate Debt 83
The Low-Unemployment Myth 85
The Anti-Wealth Effect 87
Making Matters Still Worse 91
A Bigger Fed, Lower Rates, an Extreme Financial Crisis 93
Chapter 7 How to Make Monetary Policy Make Us More Equal 95
The Aggregate-Data Error 98
The Fed's Real Mandate 102
The Fourth Mandate 104
The Fed's Giant Faucet 105
Possible Solutions 108
Slowing the Inequality Engine 111
Chapter 8 Reckoning with Regulation 113
Consumer Finance Before the Crash 115
Are Debtors Just Deadbeats? 117
Are Banks to Blame? 118
The Businesses Banks Left Behind 120
Other Precursors of the Crash That Came 121
Capitalism and Capital Regulation 123
A Capital Cure 127
Going with the Flow 128
Death without Destruction 130
The Consumer-Protection Quagmire 131
An Unreadable Rulebook Thrown Only at Banks 133
The Bleak Outlook and a Better Future 134
Chapter 9 Remaking Money 137
What Money Is and Will Be 139
The Great Unequalizer 141
Turning Money into Data 143
What Makes Money Good Money 145
Crafting a Good Digital Dollar 146
How Money Moves 148
The Central-Bank Solution 151
Chapter 10 Rules to Equitably Live By 153
Why Not Just Deregulate? 156
Learning to Love Like-Kind Rules 158
The Specifics of Symmetric Regulation 161
Raising Up the Regulatory Playing Field 162
Building a New, Equality-Focused Banking System 165
Banking While Mailing 166
Establishing Equality Banks 168
New Money for a New Mission 170
Chapter 11 Financial Policy for an Equitable Future 175
Turning the Fed into a Force for Good 176
The Fed's Failings 178
The Fed's Equality Toolkit 178
The First Fix: Understanding America as It Is 180
The Second Fix: Set an Equality Plan and Say So 181
The Third Fix: A Far Smaller Fed Portfolio 183
The Fourth Fix: Normal, Moderate Interest Rates 187
The Final Fix: Ensuring Financial Stability 188
Ending the Doom Loop 190
The Future of Equitable Finance 192
Notes 193
Index 241
"Petrou's excellent new book explains how it has been exacerbated and accelerated by the financial policies that were set in place to save the financial system from collapse after the crisis of 2007 and 2008." --Dylan Schleicher, Editorial Director, Porchlight Books
"Karen Petrou has for decades played the quiet role of consultant and adviser to banks, central banks, and large investors, helping them slash through the confusion of constantly evolving monetary and regulatory policy. It's a job that prioritizes dispassionate analysis over advocacy. Today, that changes, with the publication of her new book."--Matt Peterson, Barron's
"Banking consultant Karen Petrou is right that Federal Reserve policies have helped the rich." --Peter Coy, Bloomberg BusinessWeek
