Matthew Drennan: Why Rising Income Inequality Matters and Why Most Economists Didn't Notice
Matthew Drennan is a visiting professor of urban planning at UCLA. Prior to that, he was a professor of city and regional planning at Cornell University, where he is now professor emeritus. All of his degrees are in economics. He earned his Ph.D. at New York University (NYU). His recent book, Income Inequality: Why It Matters and Why Most Economists Didn’t Notice, was published by Yale University Press in November 2015. It was reviewed in the Sunday New York Times Book Review on December 20. Aside from his regular academic appointments, he has taught as a visitor at Yale, the University of Chicago, Syracuse, and NYU.
Prevailing economic theory attributes the 2008 financial crash and Great Recession that followed to low interest rates, relaxed borrowing standards, and the bursting of the housing price bubble. Analyzing statistical evidence, however, Drennan discovered that rising income inequality was a central cause. Pressured to keep up consumption in the face of flat or declining incomes, Americans leveraged their home equity to take on excessive debt. The collapse of housing prices left that debt unsupported, causing a domino effect throughout the economy. Drennan also found startling similarities in consumer behavior in the years leading up to both the Great Depression of the 1930s and the recent Great Recession. Drennan's careful analysis shows that the dominant economic theory of consumption is deeply flawed and should be abandoned.