NEW YORK (BLOOMBERG) - Americans have become, by some measures, richer during the pandemic than ever before.
It's a difficult thing to fathom, what with the economic collapse and the surge in the ranks of the jobless, the homeless and the hungry. But there's a whole class of people - at least the top 20 per cent or so of earners - who've had to worry little about such matters.
For them, not only has it been relatively easy to carry out their white-collar jobs from home. But the Federal Reserve's unprecedented emergency measures -- including slashing benchmark rates to zero - have padded their wallets too. They've refinanced their mortgages at record low rates, purchased second homes to get away from cities and watched the value of the stocks and bonds in their investment accounts surge.
Their massive wealth accumulation is, in large part, obscuring the toll felt by all those who don't enjoy the same easy access to credit or financial markets. As household net worth surged to a fresh record, hundreds of thousands of businesses are estimated to have permanently shut, over 10 million Americans remain jobless, and nearly three times as many are going hungry at night.
Even as a new Democratic administration plans to seek trillions of dollars of additional spending to supplement last month's Covid-19 relief package, economists warn of dire social and political consequences from the dramatic widening in the gap between America's haves and have-nots. With income inequality already near the highest in at least half a century, the country's response to the financial devastation wrought by the coronavirus raises questions about who emergency measures were designed to help, and who was left behind, they say.
"There has probably not been a better time to be wealthy in America than today," said Peter Atwater, an adjunct professor at William & Mary who popularized the notion of a 'K-shaped' recovery to describe the stark split in economic fortunes. "So much of what policy makers did was to enable those that were wealthiest to rebound fastest from the pandemic."
Over the past 10 months, higher-income earners have, relatively speaking, had it pretty good.
Employment for the top quartile of workers - those earning over US$60,000 (S$79,800) a year - has already recovered above levels from a year ago, according to data from Opportunity Insights, a nonpartisan research institute based at Harvard University.
And as lockdowns gripped the nation, millions of people, especially those at the upper end of America's socio-economic ladder, were able to redirect money they would have otherwise spent on things like entertainment, dining and travel toward savings or, better yet, investments.
For many, it has paid off handsomely. Thanks to the Fed's efforts to prop up the economy, US stocks have surged to record highs in the aftermath of the outbreak, while bonds last year rallied the most in over a decade.
"If your wealth is captured by financial assets, you were back up and running in no time," said Amanda Fischer, policy director at the Washington Center for Equitable Growth. "It's the lowest income folks who don't even have to file taxes that have the highest barrier to climb."
As their investment accounts ballooned, well-off Americans got another gift.
Mortgage rates, driven largely by the same forces that sent stocks soaring to dizzying heights, plunged to the lowest on record.
Homeowners, especially those with pristine credit scores, have been taking advantage. Refinancings have accelerated to the fastest in nearly two decades, according to data from Fannie Mae, allowing millions of borrowers to cut their monthly payments.
Employment for the bottom quartile of American earners - those making less than US$27,000 a year - remains more than 20 per cent below January 2020 levels. Last month, nearly 30 million adults lived in households where there wasn't enough to eat, according to the US Census Bureau's Household Pulse Survey, up 28 per cent since before the pandemic. In Louisiana, the worst affected state, one out of every five people now faces food scarcity, the survey shows, with the numbers being even more dire among Black Americans.
Millions are busy figuring out how to keep their homes rather than borrowing against them. Over a third of US adults who live in households that have fallen behind on rent or mortgage payments are likely to face eviction or foreclosure over the next two months, according to the December Census Bureau survey.
As the roll out of the first Covid-19 vaccines instills more optimism in financial markets, many borrowers struggling with debt are finding it harder than ever to see a path to recovery, even after the additional relief measures approved by Congress in December.
"That money was used by people just to get by," said Bradford Botes, a principal at bankruptcy law firm Bond & Botes. "The additional stimulus has not been sufficient to make any type of difference for average Americans."
To be clear, the fiscal packages passed by Washington have been among the biggest the country has ever seen, and in large part have targeted the nation's most needy. In coordination with monetary stimulus, they've undoubtedly helped scores of Americans remain employed and put food on the table.
Still, the widening economic inequality that's accompanied those efforts illustrates the limitations of the response, according to critics.
By easing credit conditions via the Fed, lawmakers were able to quickly prop up large corporations and wealthier individuals. But distributing aid to smaller firms and low-income workers has turned out to be a lot more challenging.
Delays in the delivery of assistance, as well as confusion around rules and eligibility criteria, hindered many of those programs.
Of course, it's no accident that the machinery of monetary policy worked smoothly while the fiscal equivalent sputtered. It's seen more regular use.
For roughly four decades, US governments have largely delegated management of the business cycle to an independent Fed - in line with economic orthodoxies of the time, but now coming under increased scrutiny. Fiscal policy, better suited to regulating how the pie gets shared out, fell out of fashion except as a crisis tool. And over that same period, inequality steadily widened.
According to Ms Fischer, the pandemic has shown how the infrastructure the US government could use to reach everyday Americans is broken and in dire need of reform.
"Congress did a pretty good job of getting money to people, but we didn't manage to fix decades of rusted plumbing," she said. "The fact that the Fed has infrastructure to do a bond-buying program but not do to anything else is a choice, not an inevitability."
For their part, officials from the Fed have regularly acknowledged that monetary stimulus is far from a panacea, and that the central bank has only limited tools to target specific economic outcomes.
"The Fed cannot grant money to particular beneficiaries," Fed chairman Jerome Powell told reporters during a Dec. 16 press conference. "Elected officials have the power to tax and spend and to make decisions about where we, as a society, should direct our collective resources."
A spokesperson for the central bank declined to provide further comment.
When it comes to fiscal policy, many economists argue that failure to act on another large round of stimulus could delay the economic recovery just as vaccines are rolled out to the general public.
Millions of people will see their unemployment benefits expire in mid-March if the measures approved by Congress in December are not extended. States and local government, meanwhile, could be forced to further cut their already strained budgets to make up for losses in tax revenue.
"Without more aid they will have to make more cuts, and cut services and that will disproportionately affect lower income families and communities," said Heidi Shierholz, who served as chief economist for the Labor Department during the Obama administration and is now at the Economic Policy Institute. She said comprehensive aid for state and local governments and additional benefits for the unemployed should be the priority in the next round of measures.
Economists such as Mr Atwater are also sounding the alarm over longer-term consequences of widening income inequality, which has been associated with lower economic growth, higher crime rates and increased social unrest.
"You cannot have a sustainable economy and political system where you have a small population who believe they are invincible and a growing population who feel defeated," he said. "It's in capitalism's best interest to close this gap."