1 Crisis, 2 Continents: The Impact of Income and Wealth Inequality on the 2008 Global Financial Crisis

Abstract

As modern-day economists continue to raise concerns about an increasingly likely economic recession, policymakers should examine recent economic crises to determine potential takeaways or implications for future events. The 2008 financial crisis was a defining global political and economic event. Two significant markets impacted were the United States and the European Union, who pursued divergent financial and monetary policy responses to the crisis despite their close relationship. Most existing scholarship focuses on the institutional differences in policy implementation, analyzing their impact on the overall economic trajectory. However, this thesis found that despite differences in economic indicators, anger leading to instability remained in both the U.S. and the EU, regardless of the current overall economic state. In both regions, anger and upheaval were centered around the unequal economic distribution and inequality levels, which the everyday citizens viewed as only exacerbated by the economic crisis and the resultant policy decisions.

Contrary to current economic analysis, which focuses primarily on overarching macroeconomic factors and statistics to draw conclusions, researchers and policymakers should treat income inequality as a significant outcome and indicator of a crisis response rather than an afterthought. The 2008 financial crisis in both markets showed that despite varying levels of recovery in specific economic indicators, the lack of importance placed on equitable economic distribution led to worldwide political upheaval and created a backlash that still reverberates today.

Economic crisis moments, both in the past years and in the future, should be treated as an opportunity to make progress in reducing income and wealth inequality rather than policymakers simply striving to maintain the status quo. The economic downturn caused by the COVID pandemic in 2020 and its resultant response showed that policymakers still are not adequately emphasizing the importance of equitable policies and are underestimating the importance of long-term political stability in favor of economic metrics.