Home > Uncategorized > New distributional financial accounts from the Federal Reserve!

New distributional financial accounts from the Federal Reserve!


The Federal Reserve (Fed) publishes the Flow of Funds. It has recently made an important addition to these invaluable financial data: quarterly distributional financial accounts. They are more frequent, more detailed and much faster than existing accounts. Why did they do this? For one thing: distributional accounts are not a new idea. As stated in their first footnote (but note the gap between the fifties and 2014):

For example, Carroll (2014) cites the need for distributional national statistics, while the Inter-Agency Group on Economic and Financial Statistics has called on G-20 nations to develop such statistics that are internationally comparable. Other efforts to construct distributional national measures in the United States include early work by King (1915), King (1927), King et al. (1930), Kuznets (1947), and Kuznets and Jenks (1953), more recent efforts by Piketty et al. (2017), and official measures currently in development at the Bureau of Economic Analysis (e.g., Furlong (2014), Fixler and Johnson (2014), Fixler et al. (2017)).

Outside of the USA, Keynes introduced with ‘How to pay for the war‘  distributional accounts into national accounts based policy analysis.  And that’s why we still need them, as the report states:

Wealth concentration is an important characteristic of the United States economy, with evidence mounting that concentration has increased over the last 30 years (Wolff et al. (2012), Piketty (2013), Bricker et al. (2016), Saez and Zucman (2016), Rios-Rull and Kuhn (2016)). This increase in concentration has important implications for a number of economic and social outcomes. For instance, studies have examined the relationship between the wealth distribution and economic growth (Banerjee and Duflo (2003)), monetary policy transmission (Auclert (2019), Gornemann et al. (2016), Kaplan et al. (2018)), aggregate saving rates (Fagereng et al. (2016)), optimal tax policy (Albanesi (2011), Shourideh (2012)), social mobility (Benhabib et al. (2017)), and even political engagement (Solt (2008)). The explosion of interest in the wealth distribution has also highlighted several limitations of some of the existing data sources. For example, many of the existing measures of the household wealth distribution are not comprehensive in their concept of household wealth, are measured at a relatively low frequency, or are only available with a substantial lag. Separately, scholars who focus on national accounts have expressed interest in incorporating microeconomic heterogeneity into these frameworks

The graph above compares the new DFA data with existing World Income Database data on the USA. As can be seen, they indeed are faster, show (due to a more comprehensive measure of wealth) slightly slower inequality and a somewhat more plausible increase during recent decades. And: does lower unemployment indeed lead to somewhat lower income inequality, as the very last part of the graph suggests?

Two graphs I made:



Distributional accounts

The elephant in the room is of course the decline of wealth of the bottom 90% of the USA population. Despite Tinbergen’s best efforts, income distribution wasn’t considered a very worthwhile branch of economics for quite some time. It’s good that this has changed. The Fed has done a great job.

  1. Ken Zimmerman
    May 10, 2019 at 10:39 am

    “Wealth concentration is an important characteristic of the United States economy, with evidence mounting that concentration has increased over the last 30 years (Wolff et al.(2012), Piketty (2013), Bricker et al. (2016), Saez and Zucman (2016), Rios-Rull andKuhn (2016)).”
    “The elephant in the room is of course the decline of wealth of the bottom 90% of the USA population. Despite Tinbergen’s best efforts, income distribution wasn’t considered a very worthwhile branch of economics for quite some time. It’s good that this has changed. The Fed has done a great job.”

    Merijn, good points all. Although I’m not certain I agree that the Fed has done a good job. It was doing an adequate job before 2017. Now, I don’t know what it’s doing.

    We need to remember we’ve been here before, but this time is worse. After the American civil war, the US came into its own as an industrial power, with an economy that grew faster than at any other time in its history. In the 30 years to 1900, everything multiplied – railway track mileage by five times, pig iron production by eight, coal extraction by eight. Everything, in fact, except income tax, which remained at zero – the prospect of even a 2% rate was described in Congress as “socialism, communism, devilism”. The consequent fortunes turned the people who made them into household names: Vanderbilt (railways), Rockefeller (oil), Carnegie (steel), Astor (real estate), as well as dozens of lesser-known millionaires with steam yachts and a penchant for sailing who settled for a few weeks every year into their palatial “cottages” – as they chose to think of these houses – on the low cliffs of Newport. The style overall was described as Italian Renaissance, but the persistent feature was gold – gold glistening from the vaulted ceilings, the walls and the furniture. The Gilded Age was so called because of a Mark Twain novel but, as a later writer noted, it merited the name. “There was gold everywhere,” the society hostess Elizabeth Wharton Drexel remembered in 1935. “Gold was the most desirable thing to have because it cost money, and money was the outward and visible sign of success.” (sound like someone with the initials DJT?)

    How do we react to the rich in the first and second Gilded Ages? The inequalities of the Gilded Age are infamous and, according to economists such as Thomas Piketty and Paul Krugman, well on their way to being repeated. Between 1860 and 1900, at the height of the first Gilded Age, the top decile commanded more than 45 percent of the gross income in the United States. Today, the top decile of earners commands more than 50 percent of income. In 1900 the richest 1% received more than a fifth of the country’s income – a figure that again holds good today. Populism, then as now, was a consequence. In the 1890s the mainly agrarian People’s Party deployed arguments and rhetoric that became familiar again in 2016 in both Britain and the US. As the historian Richard Hofstadter writes, there came “a great revulsion against the outside world … Everyone remote and alien was distrusted and hated … the old agrarian conception of the city as the home of moral corruption reached a new pitch. Chicago was bad; New York, which housed the Wall Street bankers, was farther away and worse; London was still farther away and still worse.” Jews were mentioned. Immigrants, welcomed by factory owners as cheap and eager labor, had made cities disgusting and ‘more foreign than American.” In Hofstadter’s words, the problem “assumed a delusive simplicity”. The power of money concentrated in the hands of people like Cornelius Vanderbilt and the other “robber barons” – had caused these social ills and it was against “money power” alone that the populists directed their crusade.

    The comparison with the campaigns for Trump and Brexit is obvious enough, and yet there is a significant difference. Unlike rural Americans at the turn of the 19th century, the disenchanted and neglected portions of the populations of the US and Britain don’t have the rich in their sights; no matter how much they have disfigured politics or avoided taxes. The elite the USA’s and Britain’s billionaire-owned press chooses to identify as the enemy is not, naturally enough, comprised of billionaires; rather it is the “liberal metropolitan elite,” “the coastal elite” that Fox News, Limbaugh etc. so despise, perhaps with its readers’ prejudices in mind as well as its owner’s. According to California law professor Joan C. Williams, the white working class resents the professional class but admires the rich. In 2016, in the Harvard Business Review, she wrote that her only surprise at Trump’s success had been her friends’ astonishment that it was possible. For blue-collar workers, the dream wasn’t to join the upper middle class, “with its different food, family and friendship patterns”, but for the family to stay as it was, “just with more money.” They had, after all, little direct contact with the rich, and tended to believe that hard work had got them where they were. Professionals, on the other hand, ordered the working class around every day. Hillary Clinton especially exemplified the “smugness of the professional elite.” In the first Gilded Age ordinary people resented the super-rich; today they vote for them. Go figure! It seems right-wing propaganda and politicians paid for by the likes of the Kochs and Mercers are indeed transforming America; into a “banana republic,” as authors in USA Today, the Atlantic, Salon, the New Yorker, etc. claim.

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