How bad is income inequality in the US

Corona crisis in the USA: “Survival of the richest”?

Empirical analyzes of the IKB indicate that the effects of an economic shock on the share of food stamp recipients will last significantly longer than is the case with the development of GDP. Keynesian care here
Support measures from monetary and fiscal policy since the great depression promptly for relief. A slump in growth therefore usually only has a small and rapidly flattening impact of a maximum of two to three years on GDP development. This is in clear contrast to the dynamic in the proportion of food stamp recipients. Here the influence of an economic shock can still be clearly seen after several years. So while US fiscal and monetary policy help the US economy return to normal relatively quickly, this policy does not appeal to lower income groups

In order to limit the impact of an economic shock on the lower income brackets, countermeasures are therefore necessary. It is not enough to "sit out" the shock. Because even in phases of economic growth, the labor market usually only recovers gradually. The same applies to the wages of the lower income brackets. Both prevent rapid positive catch-up effects after an economic shock. For lower income groups, the corona crisis could therefore be more reminiscent of the Great Depression at the beginning of the 1930s than of the financial crisis.

How bad could it be?

Even a rather moderate decline in GDP in the USA in 2020 of around four percent compared to current forecasts will move the rate of meal voucher recipients in the current year - but also in the following years - significantly upwards. Many US citizens will slide into poverty as a result of the corona crisis. Even if there will be a catch-up effect in GDP growth in the following years - the IKB is assuming seven percent growth in the years 2021 and 2022 - estimates point to a significant increase in the share of food stamp recipients, especially for this and next year. Since the number of unemployed, which is an important driver of the food stamp quota, will only decrease slowly, it can be assumed that the number of people affected will rise even in 2022. Over 20 million people could then be additional recipients of food stamps. Their share in the population would rise to a new high of over 16 percent - and not just in the short term, but above all in the years that followed the crisis. That would be over 50 million US citizens. This calculation does not take into account the health component of the corona crisis - i.e. people who slide into poverty as a result of illnesses or a lack of access to the health system.

When President Trump talks about the US economy being intact and able to rebound relatively quickly, he is certainly not thinking of the lower income brackets. You will be permanently burdened by the crisis. Conscious and far-reaching social measures are necessary to mitigate the effects of the crisis. Due to current economic policy, however, it is to be feared that the corona crisis will further exacerbate inequality in the US income distribution and marginalize an ever larger proportion of the US population - even with a V-shaped development of GDP growth. A policy that increases the trickle-down effect would be appropriate. In this context, more social spending makes more sense than tax gifts or one-off financial handouts.