A Tweet Thread by Michael Pettis explains.
- During my Sunday seminar a student made a presentation with preliminary data on how Covid-19 has affected the wealth and the income of different households in China, ranked by income. I sort of expected a broadly linear relationship in which the rich and very rich would have...
- ...been unaffected or slightly worse off, the middle worse off, and the poor a lot worse off. According to her data, however, the rich and very rich were actually better off in terms of both income and wealth (the latter, we think, mainly because they owned “better” real...
- ...estate), while the middle were worse off in both, and the poor were much worse off (in wealth mainly, we think, because of a depletion in savings). I expected Covid-19 to worsen income inequality, but I was surprised both by the extent to which it did and by the fact that...
- ...the wealthy actually continued advancing while only the middle and the poor were worse off – at least according to preliminary data. What happened in China won’t necessarily happen elsewhere, but, still, I suspect we will see similar patterns in other countries affected by...
- ...Covid-19. The net economic effect of the pandemic, in other words, is likely to be a very substantial transfer of wealth up the income scale. It seems to me that any fiscal or monetary response that doesn’t take this into consideration is likely to be ineffective and maybe...
- ...even harmful (if it worsens income inequality).
The US will see similar things but not to the same degree.
Many successful US businesses had far too much leverage and will go under as the economic data has been nothing but grim.
- May 8: Over 20 Million Jobs Lost As Unemployment Rises Most In History
- May 15: Retail Sales Plunge Way More Than Expected
- May 15: Industrial Production Declines Most in 101 Years
Fed Promotes More Free Money
Things are so bad in the US, The Fed asked Congress to step in with fiscal recommendations, especially more deficit increasing measures.
I commented on May 14, Panic Sets In: Fed Promotes More Free Money.
The Fed wants the asset holders to be bailed out and the Fed will try, but the US rich "in general" will not as a class all do better.
Yet, I agree with this key statement: "The net economic effect of the pandemic, in other words, is likely to be a very substantial transfer of wealth up the income scale."