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Fed Examines Wealth Redistribution Program; Decides It's Not Worth It
For seven long years the Fed has aggressively defended a monetary policy regime explicitly designed to inflate the type of assets most likely to be concentrated in the hands of the wealthy.
Despite the protestations of the man under whom these policies were implemented, the gap between the rich and everyone else has grown in post-crisis America. For evidence of this look no further than latest data on US household income, which shows that while the 0.001%, the 0.01%, the 0.1%, and the 1% have all nearly recovered their pre-crisis share of the national income, the bottom 50% of US filers' share is not only lower than it was in 2007, but is in fact lower than it was in the depths of the crisis.
For further evidence of the ballooning wealth divide, simply consult the St. Louis Fed, where researchers recently opined that the American Middle Class “is under more pressure than [anyone] thinks.” The related study shows the fate of Middle Income America diverging sharply from that of the country’s “thrivers” (the name the Fed gives to society’s upper echelon).
And while those who, like Janet Yellen, understand how important it is to accumulate assets are doing quite well thanks to multiple iterations of unbridled money printing, the “wealth effect” — which was supposed to be the transmission mechanism whereby trillions in central bank liquidity would find its way to Main Street — simply never materialized. So, with housing becoming more unaffordable by the day and wage growth stagnant for 83% of workers, the San Francisco Fed apparently decided it was time to think about redistributing some of the hundreds of billions the FOMC has generated for America’s ultra rich in order to help out the have-nots and jump start consumer spending. Spoiler alert: after careful consideration, the bank decided redistribution probably isn’t worth the trouble. Here’s more:
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From The Stimulative Effect Of Redistribution
The idea of taking from the rich and giving to the poor goes back long before the legend of Robin Hood. This kind of redistribution sounds desirable out of a sense of fairness. However, economists often judge a policy less on whether it is fair, and more in terms of whether it is efficient or inefficient, as well as whether it stimulates or slows economic activity.
The starting point for our simple estimate is the Consumer Expenditure Survey, which gives an annual picture of complete consumption patterns for U.S. households. The solid black line in Figure 1 plots the share of income that households consumed in 2013. The survey ranks households by income from low to high and divides them into 10 groups called deciles, with the 1st decile showing households in the bottom 10% of the income distribution, and the 10th decile showing households in the top 10%. Spending is then averaged for each decile of the income distribution. The shaded areas below the solid line reflect the share of income spent on different major expenditure categories.
The figure suggests that households at the lower end of the income distribution spend more than twice what they make. At the upper end, households spend about two-thirds of what they make. Given this large difference in the propensity to consume between low- and high-income households, we consider the economic impact of levying a $1 tax on the rich and transferring it to the poor. This would reduce the high-income household’s spending by about $0.66 and increase the low-income household’s spending by $2, assuming each group spent additional dollars at their average rates. On net, it would create an increase in spending of more than $1.25. Even if the average for households in the bottom decile is overstated and they simply consume all the income they make, Figure 1 suggests every $1 of redistribution from the top earners to the bottom one-third of the income distribution would boost spending by at least $0.33.
There are still two main reasons why this result overstates the stimulative effect of redistributing income.
By definition, income equals consumption plus savings. In addition to the consumption and income data we used to calculate the propensity to consume in Figure 1, the Consumer Expenditure Survey also contains data on household savings. One can calculate an alternative measure of propensity to consume using the sum of consumption and saving as the measure of income rather than the income reported in the survey. The resulting alternative profile of the propensity to consume across the household income distribution is shown by the dashed black line in Figure 1. This alternative measure results in a flatter profile of the propensity to consume than the conventional measure, largely because the estimates for low-income households are much lower. The revised estimates suggest these households report consumption and savings levels that are consistent with a substantially higher income than they report in the survey. At the other end of the distribution, high-income households tend to underreport their consumption, especially for basic items like food. This results in an understatement of their propensity to consume (Aguiar and Bils 2011).
Combining the measurement biases at the lower and upper ends of the income distribution suggests that the actual profile is much flatter than the initial one we discussed.
Our discussion of the permanent income hypothesis touched on the importance of access to credit for household consumption levels relative to income. If households have access to credit then they are able to smooth their spending in response to a temporary negative shock to income. Even if they do not have access to credit, households can still self-insure by setting aside savings to cover expenses in times of unexpected income losses. In both cases, peoples’ consumption decisions are driven mainly by their permanent income, and so a high propensity to consume in 2013 may simply reflect a temporary loss of income. The fact that households at the low end of the income distribution can consume substantially more than they earn may also suggest that they have more access to credit than is apparent. In this case, the simple back-of-the-envelope calculation may overstate what fraction of additional income these households would consume.
There is evidence that differences in propensities to consume this additional income across households are smaller than commonly assumed.
To summarize, the San Francisco Fed took a stab at quantifying whether a small levy on the rich would have an outsized impact on the propensity of the lower and middle classes to spend, and once they determined that the answer was probably "yes", they went back and adjusted a few things to ensure the data was an 'accurate' representation of reality only to determine that in fact, people's propensity to spend doesn't really vary that much across tax brackets, so therefore, redistributive policies probably wouldn't do much for the economy after all. Conclusion: it's probably just as well that the rich keep that dollar as opposed to giving it to the poor.
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They've willfully done precisely the opposite, and one day they will get their comuppance.
The whole thing is a farce. Red herring.
They talk about 'high income' and 'low income', meaning they aren't talking about taking from the WEALTHY at all, but from high income earners. You know, people who work for their money. A very different group from the ultra-wealthy, the billionaires, who we all know do not EARN ANY INCOME at all.
Because it would be subject to tax, after all.
You make a very good point.
Hey grampa Yellen, try the Grimm brothers....
I think if Krugman and Piketty want to find out why we have increasing wealth inequality they may want to look at the central banks they love so much handing money directly to the rich instead of some inherent flaw in capitalism, r>g.
Dude, there is no way you have written a blog post that is relevant to every ZH article.
You can bet even money that Spokes Model Hilsenrath will not be defending the gates when the Vandals come to visit.
https://en.wikipedia.org/wiki/Vandals
Herd Red makes a good point, I agree.
Taxpayer, rather than Wealthy is the word the article ment to say.
Shame on you blogger!
FED/Yellen: Stop giving the uber wealthy moar and moar. You have given them a massive $$$ vortex that they us to suck the life out of us. Just take back and burn what you gave them. Make your cabal compete fairly with the rest of us. It's not brain over brawn, it's organized theft . We don't need your stinkin handouts, bitches.
RIght and we already have the full force of the governments gun barrel stuck in our mouth as it is, we sure the fuck don't need the cabal of fucking private bankers in the form of the Federal Reserve piling on but you would be surprised at the amount of people that want to stick it to "the man" when "the man" is putting 80 hours a week into his own business and employes 5 people.
He ain't the man.
He's just a serf with a wagon.
QE is and always was, a reverse Robin Hood scheme. And the perps should be delivered to justice.
The FED exists to enslave.
That's their business model.
Old Money VS new money, or even money earned...
Scum Suckers.
Well that and a couple of other things.
They are not talking about taxing corporations.
They are talking about tax and redistribute and not helicopter money. The Fed cannot tax and redistribute, directly. The Fed can print.
So, have you stopped beating your wife yet?
Fuck the central banks ...
That's not enough
wouldn't it be more apt to describe this as redistributing money received through fraud & theft than redistributing 'income'?
edit: 'income' makes it sound like those who benefited the most actually did something productive.
Jewish Economist: "I will give you ten clamshells for that Volkswagon."
American Economist: "I will give you ten clamshells and ten US Dollars for that Volkswagon!"
German Economist: "they must have clams in the clam shells and they must be fresh and yummy!"
AMERICAN President: "shoots all economist, eats clams, drives off in new Volkswagon."
In our next exciting episode !
I thought the FED specialized in overstating the results of their policies. Wouldn't that make the "Robin Hood" policy ideally suited for Fed implementation?
Stupid poor people spend everything they make. If they weren't so stupid and actually saved the excess they do not have they also could be filthy fucking rich.....
Saving and investing 10% of your income you could be a millionaire by working at Macdonalds.
The poor people that I know HAVE to spend every penny they make, and then some, just to LIVE. The premise that poor people spend beyond their means is fallacious, because most HAVE to just in order to have any kind of life at all. Those that can't borrow end up homeless, and that number is increasing exponentially.
The Fed Examines . . . i thought we were supposed to be examining the Fed . . . i'm confused.
1. Get job at Fed.
2. Make great money all while spending years making sure certain financial companies make billions.
3. Retire from Fed
4. Get "very lucrative" position "working" for companies you helped make billions.
This is my design.
The entities know as the FED sure spend a lot of time doing worthless studies.
The rich can keep the money.
We'll cut their heads off and see then what the heirs do with the money.
Redistribution in ANY direction isn't worth it.
Well I am not in the high earner group but I do NOT see how taking money from them will help this problem. After all they did not create it. It was created by boondoogles in the stock market and taxing the little guy for TBFIOG (Too big for its own good) government. I should mention a healthy dose of unhealthy inflation did it too. Higher taxes + stagnant wages + ridiculous inflation = 0.1% of people with all the money.
Now they just take the cheap easy money and buy more assets. I would too. Low and behold that is what they did. If you burdon the little fellow by keeping all these foolish malinvestments alive (which includes the educational institutions) then there is "NO RECOVERY".
"Conclusion: it's probably just as well that the rich keep that dollar as opposed to giving it to the poor."
Conclusion...please, please don't get pissed off that the rich managed to scoff up every Fed $ released into the wild. Please leave the rich alone! Don't bother them! Don't ever say confiscatory taxation! Just leave all that ZIRP, QE money just where it is...in their hands!
Tyler, WTF kind of conclusion is that?
The idea of taking from the rich and giving to the poor is popular among people who I thought were not as well educated as you but in reality has no basis in fact. If we stop the money printing and regulations and allow people to conduct trade amongst themselves as people instead of subjects, rich wouldn't have to give to the poor and the poor could help themselves as do we used to whenever we had sound money policies.
Duh.
"Fed Examines Wealth Redistribution Program; Decides It's Not Worth It"
ORLY?
....seems to have worked preddymuthafugginGOOD in this equasion
999999% >>>>> $$$$$$$$$ >>>>>> Banksterz
They'll pay up big time all of them once the collapse begins.
"The fact that households at the low end of the income distribution can consume substantially more than they earn may also suggest that they have more access to credit than is apparent. In this case, the simple back-of-the-envelope calculation may overstate what fraction of additional income these households would consume."
In other words ~ Let them eat credit.
Pretty pathetic propaganda from an outfit with 1600 employees who gift themselves $161 million a year conjured straight out the aether.
This is why Obama needs a 3rd term
The headline is funny, given that it's been working perfectly for six years so far: upward. Part of the now-poor middle class? That's wealth redistribution baby.
ok then, revolution it is.
"are there no work houses? are there no prisons?"
CLARIFICATION
"The idea of taking from the rich and giving to the poor goes back long before the legend of Robin Hood."
Liberals want you to believe that Robin Hood took from the wealthy, but that didn't happen. He took from the government. The King, his oourt and all the crony capitalist became wealthy by over taxing the middle class and poor. Robin Hood returned tax money to the populace. Does all this sound familiar?
http://ashbrook.org/publications/oped-busch-02-robinhood/
Where's Paul "We didn't do enough QE" Krugman?