Death by a Thousand Cuts: Financial Innovation and Income Inequality
Financial innovations come in a spectrum of sizes and complexities. This paper deals with the sorts of small-scale, noncomplex innovations that are frequently used by low and lower middle class individuals. These come in many versions, and a given individual may use five or ten. While no single one of these innovation likely makes a significant difference in income inequality, cumulatively they may cost a household thousands of dollars a year. When taken across millions of households, the effect is to materially increase inequality. Small-scale financial innovations are not just a case of making the less well-off even worse off. Money moves up the ladder.