Overly loose and long-term stimulus policies may worsen inequality -Part 2

Si Gyeongmin

Oct 27, 2021

In a broad category, policymakers have two tools: fiscal policy and monetary policy. When the economy is in recession, according to the severity, they will decide the response level of the two policies. From the perspective of monetary policy, policymakers will support the economy by lowering interest rates, providing liquidity to the market, and even directly purchasing various bonds. While the fiscal policy will push the economy back on track through tax cuts, increased fiscal expenditures, and provide subsidies. There is no doubt that various measures to support the economy have played a certain role in stopping the economic downturn. Otherwise, allowing the economic downturn to evolve freely, the consequences may be extremely serious. But can the broken mirror be reunited? To some extent, it seems impossible. Every economic recession and subsequent stimulus measures will cause a certain degree of change in the economy, and no matter what else, inequality in the economy will evolve undesirably. Specifically, inequality has two important dimensions, one is income inequality, and the other is wealth inequality. The economic recession and subsequent stimulus policies will have an important impact on these two dimensions.

First of all, we need to recognize a concept, that is, the impact of many things is not symmetrical. The impact of an economic recession is a good example of asymmetry, which has a greater impact on certain people. These people seem to be more concentrated in low-income groups, and they are vulnerable to the impact of economic recession and lose their source of income. In contrast, the impact on high-income groups is obviously much smaller. The economic recession has had the first impact on the level of inequality in the economy.

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