Rising inequality is holding back the U.S. economy

Why has the U.S. economy been so sluggish to return to growth in the aftermath of the Great Recession of the late 2000s? In new research, Barry Z. Cynamon and Steven M. Fazzari find that the current level of household demand is more than 17 percent lower than its pre-recession trend, preventing a stronger recovery. They argue that in the lead up to the Great Recession, households compensated for rising inequality and stagnant wages by borrowing more, something that became unsustainable when the financial crisis hit. For the U.S. to achieve robust growth rates once again, the gap in demand that opened with the collapse of household spending in the Great Recession will have to be closed, preferably through wage growth across the board.