My new book, The Upside of Inequality: How Good Intentions Undermine the Middle Class, argues that the economy’s capacity and willingness to take risk now binds growth. Since the financial crisis, the equity risk premium—often measured as: [1/PE ratio] – 10 year Treasury rate—remains near fearful recessionary levels. With less risk and the flight to safety, the US equity risk premium is lower than the world premium, but is similarly elevated relative to historical levels. Real investment that grows the economy is far more illiquid than publicly traded equities used to measure the equity risk premium. The illiquidity premium remains elevated and the IPO market, where stocks volumes are less liquid than public markets generally, remains closed.
