Notwithstanding sharp reductions in debt service traceable to the Fed's zero-interest rate subsidy, the stock of debt is still about 116 percent of disposable personal income, well above the 43 percent average in the final three decades of the 20th century. Similarly, the personal savings rate, at 4.25 percent in the first half of 2013, is less than half the 9.3 percent norm over the 1970-99 period.

This underscores yet another of QE's inherent contradictions: its transmission effects are narrow, while the problems it is supposed to address are broad. Wealth effects that benefit a small but extremely affluent slice of the US population have done little to provide meaningful relief for most American families, which remain squeezed by lingering balance sheet problems, weak labor markets and anemic income growth.

The Fed's goal of pushing the unemployment rate down to 6.5 percent is a noble one. But relying on wealth effects targeted at the rich to achieve that goal remains one of the great disconnects in the art and practice of economic policy.

The Occupy Wall Street movement began two years ago this month. While it can be criticized for its failure to develop a specific agenda for action, it galvanized attention to income and wealth inequality in the US and around the world. Unfortunately, the problem has only worsened.

Lost in the angst over inequality is the critical role that central banks have played in exacerbating the problem. Yes, asset markets were initially ecstatic over the Fed's decision this month not to scale back QE. The thrill, however, was lost on Main Street.

That is precisely the point. The Fed's own survey data, which underscore the concentration of wealth at the upper end of the US income distribution, fit the script of the Occupy Wall Street movement to a tee. QE benefits the few who need it the least. That is not exactly a recipe for a broad-based and socially optimal economic recovery.

The author is a faculty member at Yale University and former chairman of Morgan Stanley Asia, and has the book, The Next Asia, to his credit.

Project Syndicate

(China Daily 09/28/2013 page5)