Wealth Inequality, Keynesian Economics, and QE in the US
This paper analyzes US wealth inequality from a macroeconomic perspective, arguing that Keynesian economics and unconventional monetary policy — specifically quantitative easing (QE) — have disproportionately benefited the wealthiest Americans since the 2008 Great Financial Crisis. Drawing on data about income growth, central bank intervention, offshoring of production, and pandemic-era business closures, the paper traces how Federal Reserve asset purchases inflated equity markets, enriched the investing class, and left the working and middle classes with stagnating wages and rising costs of living. The paper also addresses counterarguments about QE's role in preventing economic collapse before concluding that without structural changes to production and market competition, the wealth gap will continue to widen.
- Introduction: Thesis linking QE to widening US wealth gap
- Keynesian Economics and the Role of Monetary Policy: Classical vs. Keynesian theory and fiscal-monetary tools
- The Wealth Gap and Its Structural Causes: Offshoring, credit, and stagnant middle-class wages
- Quantitative Easing and the Post-2008 Divergence: Fed asset purchases boosted equities, hurt working class
- Counterargument and Rebuttal: QE stabilized economy but deepened distributional inequality
- Conclusion: Structural reforms needed to reverse widening wealth gap
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What makes this paper effective
- Grounds its argument in concrete data points — savings rates, Fed asset purchase announcements, and business closure statistics — giving the macroeconomic claims empirical support.
- Traces a coherent causal chain from Keynesian theory through QE implementation to real-world distributional outcomes, making the theoretical argument accessible.
- Includes a counterargument section that fairly presents the pro-QE case (jobs saved, GDP stabilized) before systematically rebutting it, strengthening overall credibility.
Key academic technique demonstrated
The paper demonstrates effective synthesis across multiple disciplines and timeframes — integrating post-war monetary history (Bretton Woods, the Petrodollar system), classical and Keynesian economic theory, and contemporary Federal Reserve policy to build a unified causal argument. This multi-layered contextualization shows how to use historical background as scaffolding for a present-day policy critique.
Structure breakdown
The paper opens with a thesis linking Keynesian economics, QE, and inequality, then provides theoretical background on classical versus Keynesian economics. The next section examines structural drivers of the wealth gap — concentration of wealth, wage stagnation, and political power. A dedicated section focuses on the post-2008 QE rounds and their distributional effects. A counterargument section acknowledges QE's stabilizing role before rebutting it on distributional grounds. The conclusion synthesizes findings and warns that without structural changes, the wealth gap will persist.
Introduction
Boushey reports in Unbound that "the very richest households — the top 1 percent — save 51 percent of their income, while those in the bottom 20 percent save just 1 percent."1 The income gap between the top 1 percent and the 99 percent in the US has only increased since the Great Financial Crisis of 2008, when the Federal Reserve responded to the bursting housing bubble with three rounds of unconventional monetary policy. As Pew Research has shown, "economic inequality, whether measured through the gaps in income or wealth between richer and poorer households, continues to widen."2
The widening wealth inequality in America is directly related to Keynesian economics, unconventional monetary policy, and central banking intervention, which benefits the top 1 percent to the detriment of the rest of the population. This subject is important because if it goes unaddressed, the vast majority of the US population will end up as little more than serfs under the 1 percent. This paper addresses the issue of wealth inequality by examining the gap between the 1 percent and the 99 percent and explaining how Keynesian economics and quantitative easing (unconventional monetary policy) have exacerbated that gap over the decade-plus since the Great Financial Crisis of 2008.
Keynesian Economics and the Role of Monetary Policy
Classical economic theory posits that free markets are balanced by the law of supply and demand. This was the basis of Adam Smith's view that economic order and balance could be maintained so long as nations did not attempt to engage in a zero-sum game. Keynesian theory developed in response to perceived market irregularities and is based on the idea that markets will not self-correct when problems arise, because markets are inherently imperfect. During a recession, for example, wage reductions mean earners have less to spend, and savers will keep money out of the economy if the interest rate is high enough.
Keynes therefore suggested that fiscal policy (government spending) and monetary policy (control of the money supply by the central bank — the Federal Reserve in the US) should work strategically to counter business cycles and ensure balance in the economy. This idea necessitated, however, that the free market economy be transitioned into a command economy. Keynes himself "lost faith in the power of his monetary transmission mechanism, and had moved his preference towards fiscal policy," but fiscal responsibility has not been a hallmark of the US government since 2008, and monetary policy has been used to support the markets.3
Bibliography
Boushey, Heather. Unbound: How Inequality Constricts Our Economy and What We Can Do About It. Harvard University Press, 2019.
Lavoie, Marc, and Brett Fiebiger. "Unconventional monetary policies, with a focus on quantitative easing." European Journal of Economics and Economic Policies: Intervention 15, no. 2 (2018): 139–146.
Mandel, M. "The Real Cost of Offshoring." Business Week, 18 (June 2007): 29–34.
Menasce Horowitz, Juliana, Ruth Igielnik, and Rakesh Kochhar. "Trends in Income and Wealth Inequality." Pew Research, 2020. https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality/
Spiro, D. E. The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets. Cornell University Press, 1999.
Sraders, Anne, and Lance Lambert. "Nearly 100,000 establishments that temporarily shut down due to the pandemic are now out of business." Fortune, 2020. https://fortune.com/2020/09/28/covid-buisnesses-shut-down-closed/
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