Engine of Inequality: The Fed and the Future of Wealth in America

by Karen Petrou

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

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 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.

Genres: Economics, Politics, Nonfiction, Business, Finance, History, Audiobook

223 pages, Kindle Edition

Published March 5, 2021

Reviews

[Dallin · Rating 4 out of 5]

Well detailed explanation of everything wrong with the Fed and the current policies that lead to poverty instead of solving it.

[Richard Marney · Rating 4 out of 5]

The author’s focus on the US Federal Reserve presents a fresh perspective to the public policy debate around inequality.

In a nutshell, super-low interest rates intended to foster financial stability and economic growth through the troubled period of 2008 to the present have exacerbated already high levels of inequality. The most glaring example - a family with a few dollars in the bank has seen its savings depreciate in real terms, whilst affluent investors have experienced dramatic accretion in the value of their portfolios, more so with leverage - is just the tip of the iceberg.

The overall recommendation is the Fed should do less (e.g., move way far more quickly from the post-GFC accommodative monetary policy) and what it does undertake remember that the country does not all live on Central Park South. Specific “fast-acting equality improvements” suggested include: (1) better data to see America as it really is (think, those families who don’t have $400 for an emergency); (2) Fed to adhere better to its four-pronged mandate (in particular on interest rates…..don’t keep them too low for too long); (3) ensure equality considerations figure in decision making; and (4) recall that financial stability depends ultimately on shared prosperity not on high-flying financial markets where a small percentage of the population owns most of the assets.

Realistic? Unlikely in a country where minority rule of plutocrats in populist (or worse) clothing is on the rise. Consider recent GOP opposition to highly qualified Fed nominees just because of their past views about inequality, institutional racism, climate change, etc. the successful fixing of which would mean stronger, more sustainable, and equitable economic growth for all.

[Fred Herlihy · Rating 3 out of 5]

Learned a bit. But a twisted perspective.

[Mary Vogel · Rating 5 out of 5]

I did my Master's thesis in Urban and Regional Planning/CD on housing policy and found myself needing to explore fiscal policy, monetary policy and tax policy to make any sense out of housing policy. Shortly thereafter, I found the Institute for Community Economics with their Community Land Trust model and felt "I can't believe they said the whole thing"! The CLT has been the model I have promoted as the solution for a long time--though I've still stayed away from seriously dealing with housing policy until the last few years--when the tents on the sidewalks make that unavoidable!

This brief self-intro is a prelude to why I think this book offers such great analysis of one of the root causes of inequality--and hence, why those tents are there. I find it amazing that a woman who has been blind since she was 40 years old could write such a book and make such complex topics as monetary policy and fiscal policy so understandable to the layperson! THANK YOU Karen Petrou!

I'm using her analysis in my work with the PLACE Initiative analysis of what federal agencies should do better to promote climate justice. The two agencies I stumbled on were the Federal Reserve and the Securities and Exchange Commission. Then I heard an interview with Petrou on Marketplace--which led me to buy her book on Audible and listen to parts of it multiple times. I'm still working on the analysis of those two agencies, but Petrou has helped me enormously. Though I really need a hard copy to do it justice.

I was hoping that a follower of THE DEFICIT MYTH by Stephanie Kelton would review ENGINE OF INEQUALITY because the two don't seem to agree on a critical point.

[Fan Wu · Rating 5 out of 5]

This is an excellent book written with humanity. I used it as an guide to investments and do not think the proposals at the end of the book are realistic. And the author must know it too.

Sadly when the wheel starts flying, it takes more than insights to stop it.

[Nate Campbell · Rating 3 out of 5]

Wanted this book to be better. Very left wing slant, even though I agree with much of the analysis and think there is a lot of truth to the assertions. Recommendations are also good.

[JC NoKey · Rating 2 out of 5]

Rambled and overly political

Fix 1 understanding America as it is (maximum employment = modern employment, ie inclusive of underemployed underpaid and underworked; price stability not bybaskets but actually what it costs to live as middle class American)

Fix 2 equality plan confusing

Fix 3 downsize fed portfolio

Fix 4 normal moderate interest rates (theory is low rates stoke growth because middle class takes loans to buy shit, we don’t have egalitarian society so instead leads to yield chasing instead of banks making loans to consumers at reasonable rates)

Fix 5 ensuring financial stability (address inequality/instability nexus… plans TBD)

First, the Fed failed to see how economically unequal America had become. Persuaded by old models and historical experience that more of the same, upward-focused policy would somehow create shared prosperity, the Fed made its second mistake: it failed to understand that unconventional monetary policy, powered as it was only by market gains, couldn't work. If trickle-down policy led to strong recovery, then post-crisis policy could be deemed something of a success even if post-2010 monetary policy left income and wealth distributions as they were or even made them just a bit more inequitable. Instead, a decade of Fed policy led not just to unprecedented inequality, but also to a weak recovery precipitating the Fed's third mistake: failing to understand that inequality breeds financial-system fragility.
The tornado that struck the US in 2020 was thus the result of years of Fed-fueled market gains, inexorable increases in economic inequality, still more market-boosting policies, still less equality, a national economy with no resilience, and then yet another and even more shattering financial crisis. Short-circuiting this doom loop is far easier than it may seem.

[Lowell Ricketts · Rating 4 out of 5]

Karen Petrou does a nice job at highlighting growing wealth inequality in the past 30 years, with a focus on the experience after the Great Recession starting in 2008 and the more recent pandemic induced crisis.

She lambasts the Fed as having failed by pretty much every metric but concedes later on a critical point: the financial system didn't meltdown following either crisis. Yes, the unconventional monetary policy in the form of QE has inequality-inducing side effects but at least they accomplished the goal of staving off a Great Depression. I think context is lost often in Petrou's criticism and hindsight is 20/20. Her alternative recommendations for monetary policy fall quite flat in my opinion, especially after the withering criticism throughout.

Petrou's expertise really shines when it comes to regulatory asymmetries within the banking industry and their pernicious side effects on consumer protection, economic growth and financial stability. Her recommendations for equality inducing reforms that are politically palatable provide excellent ideas for policymakers looking to right the ship.

Throughout the book Petrou's writing style is engaging and she deftly breaks down some very complicated subject matter. I would recommend this book if you want a timely x-ray of dysfunction in financial policy, just keep in mind that there were benefits to the Fed's monetary policy as well.

[Lynn · Rating 3 out of 5]

I don’t really know enough about monetary policy to judge this book. I feel like this could be summarized in a (long) Vice article. Based on what I do know, there are some idea she’s has that I agree with (
- low interest rates prop up financial markets that mostly help the rich
- private institutions and public institutions both have their pros and cons. We shouldn’t just replace private corps with govt.
) and stuff I don’t agree with (
- Is propping up the market actually a bad thing? Don’t we care about market stability for the benefit of everyone?
- Is aggregate data really that bad? For example, she mentions that we should collecting data about what people actually buy to survive rather than a generic basket of goods to calculate inflation, but if the basket is always changing, doesn’t that make measurement faulty? Also isn’t the basket of goods supposed to represent what people buy?
- would forgiving college debt actually help low income folks since most of them don’t have college degrees?
). In general, her take was more nuanced than I was expecting, but I don’t really know enough about financial markets/regulators to assess her proposals.

[Douglass Gaking · Rating 4 out of 5]

I have been frustrated with the Federal Reserve's role in expanding inequality for years. I am so glad that someone with Karen Petrou's experience and qualifications has finally written a book on it. Much has been written that is critical of the Fed, but it often focuses broadly on inflation and financial bubbles. Petrou looks more specifically about how monetary policy affects various socioeconomic classes, as well as other demographics. Petrou also sets herself apart by providing policy solutions that could shift monetary policy and banking in the U.S. to being equal and equitable. Petrou also takes complex economic concepts and explains them concisely and accessibly so that any concerned reader can understand the problems and some of the potential solutions. Anyone concerned about issues of income inequality and wealth inequality should read this book.

[Miguel · Rating 4 out of 5]

Though there’s a lot of table-setting at the beginning that's a bit repetitive, the author eventually makes her case on ability of Fed action to not just take action on assisting Wall St but to help out Main St as well. Sentiments shared, but there could be more meat on the bones of fiscal policy specifics / examples or even some counter-factual scenarios laid out to better bolster the positions.

[John · Rating 4 out of 5]

This is a good book that focuses mainly on financial regulation and how the Federal Reserve can curb inequality. The first several chapters focus on income/wealth inequality in the United States. The later chapters focus more on bank regulation and policy and how these can be fine-tuned to help the United States reduce inequality. It is well worth a read!

[David · Rating 4 out of 5]

Whenever you read a book criticizing the actions (or even the existence) of the Federal Reserve, you almost always assume it's coming from a Libertarian angle.

But this is different. This is a simple and decent analysis of how the Fed's action advantages Wall Street and hurts Main Street, and the possible ways to fix this.

[Thomas · Rating 1 out of 5]

A master guide in how to interpret statistics to support your hypothesis. It was so political that it was simply unpalatable. I was expecting an interesting structural analysis of the FED, but I was given diatribes against conservatives.

[NoirReader · Rating 3 out of 5]

Relying on the Fed & CBDCs to solve these problems is absurd. You don't solve the system by using the system.

[Nick Mariner]

Hoo boy, was this book upsetting.

[Melissa]

Bessent

[Mehrsa · Rating 4 out of 5]

The first half of book is really really important for all the monetary policy people out there--just the idea that the Fed makes policy through monetary policy. But her solutions for the most part are way off base. Raising interest rates is not good for poor people--it may be good for "savers" as she says, but it's terrible for borrowers and the vast majority of low income people are the latter. I also don't agree with her solutions for access--or her waving off some proposals out there for say...postal banking.. or fed accounts. I think she makes some assumptions on those (like that the Fed would have to lend if they opened the payments system), but overall the book has a lot of excellent analysis and content.

[Rachel · Rating 1 out of 5]

Just three american individuals- Jeff Bezos, Bill Gates and Warran Buffet- own more of the nation’s financial wealth than the bottom half of the country combined.

Many studies have shown that education is directly linked to economic advancement, but public education by definition depends on the public wealth.

Although housing is the most commonly held household asset, families in the top 1% hold mostly private equity (ie. shares in complex investment companies) and their own businesses; families in bottom 25% own their cars, furnitures and the savings account they steadfastly maintain no matter their negative real return.