A normalising world will not be a harmonious world. The massive fiscal and monetary stimulus that is helping revive GDP growth in developed economies favours the privileged directly, and trickles down only slowly to the middle classes, the poor and the unemployed. That tension will worsen.
The trend to increased income inequality began long before the 2008 financial crisis. Income distributions in 17 member states from the Organisation for Economic Co-operation and Development became more unequal between the mid-1980s and 2008, while there was no significant change in three. Inequality decreased in only two, Turkey and Greece.
What happened after the crisis isn’t yet clear. But in the United States the very rich have done very well. The share of income taken by the top 1 percent of earners declined with the markets in 2008, according to Emmanuel Saez of the University of California at Berkeley, but has rebounded. The upward trend, from 9 percent of total U.S. incomes in the early 1970s to about 20 percent before the crisis, has resumed. The inflation-adjusted income of the bottom 99 percent rose by only 0.4 percent between 2009 and 2012.
Post-crisis low interest rates helped some poor borrowers, but penalised frugal small savers. In the United Kingdom, many workers who retired during the crisis were forced into taking abysmal annuity rates. At the bottom of the income ladder, unemployment has increased and welfare benefits have generally fallen.
At the top, though, quantitative easing has produced gains on financial and real estate assets, especially for people rich enough to take the risks of leverage. Executive pay has continued to rise, and in the still extravagantly rewarded financial sector, the best remunerated have gained from a misguided regulatory assault on variable pay.
Recovery is on the way, and some of the exceptional policies are set to be unwound in 2014. But the less well-off face more time out of work, more years in the workforce, and less real income and lower pensions than they would have expected before the crisis. A recovery that doesn’t feel like one will lead to an increasing sense of grievance.