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The Rich and the Great Recession

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The Rich and the Great Recession

IMF,

5 min read
5 take-aways
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What's inside?

The circle of blame for the Great Recession widens to include the wealthy.

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Editorial Rating

8

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  • Innovative

Recommendation

Researchers Bas B. Bakker and Joshua Felman of the International Monetary Fund unearth weaknesses in the argument that middle-class borrowing and spending were the main culprits behind the Great Recession. Their research suggests that the wealthy played a much greater role in the most recent economic boom and bust, as well as in the cycles of the past three decades, than previously acknowledged. getAbstract recommends this intriguing study to readers exploring some of the less-obvious reasons behind the Great Recession.

Summary

Though many studies blame the drop in middle-class fortunes for the United States’ Great Recession, they often ignore the role of the wealthy. Two theories attempt to explain the financial crisis: The “inequality narrative” says that the middle class’s overly zealous use of debt fueled the speculative real estate bubble and the eventual housing price collapse; the “wealth narrative” proposes that rising prices for all assets in the boom years raised consumption and lowered savings. After the fall in asset prices, consumption waned, too.

The housing boom lies at the center of both theories, but the inequality...

About the Authors

Bas B. Bakker and Joshua Felman are researchers with the International Monetary Fund.

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