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The Rich and the Great Recession
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The Rich and the Great Recession

Bas B. Bakker and Joshua Felman
IMF, 2014
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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.

Take-Aways

  • Although many studies blame the drop in middle-class fortunes for the Great Recession in the United States, they often ignore the role of the wealthy.
  • Most explanations for the financial crisis center on two theories: 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.
  • By contrast, 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 plummeted.

About the Authors

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

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