Economists are almost positive that the neutral rate has fallen in the aftermath of the financial crisis. It’s hard to pin a precise number on the theoretical concept, but San Francisco Fed President John Williams and his co-author Thomas Laubach found in a recent paper that the rate in the U.S. probably fell to 0.4 percent adjusted for inflation in 2015, down from 2.3 percent in 2007.

The neutral setting is expected to rise over time as the economy returns to its full potential, but expectations for that longer-run rate have also dipped. Fed officials’ median projection stood at 3 percent in June before counting for inflation, down from 3.75 percent a year earlier.

Various forces could be driving the drop, but much of it boils down to a lack of demand -- and that’s where inequality comes in.

According to secular stagnation, a theory developed by economist Alvin Hansen in the late 1930s, lower population growth rates cause an oversupply of savings, suppress aggregate demand and drive down growth. Harvard economist Lawrence Summers has suggested the 2008 crisis may have ushered in a new era of such mediocrity. As a result, the short-term neutral rate of interest may be lastingly lower.

Inequality Effect

Higher inequality has caused a shift toward saving, Summers said in a 2014  speech. “Reduced investment demand and increased propensity to save operate in the direction of a lower equilibrium real interest rate,” he said.

Last year, the top one percent of American households took home $1 million in income on average, not including capital gains, and held 18 percent of the total income share in the country, based on data from the World Wealth and Income Database. That’s up from 13.5 percent two decades earlier and 8 percent in 1960.

Levine, who is a member of the inequality-focused network Responsible Wealth, retired in 1999 at age 52 after a career on Wall Street. Even though he lives off a small part of his investment income, that’s still sufficient to maintain a home on Central Park West and a house in the country, while indulging a love of fine dining -- he recently took a party of nine or 10 guests to Del Posto in New York, where a five-course dinner starts at $149 a head before wine.

Rich Problem

Levine said that today’s CEOs and top earners also live on a fraction of their income. “Even those with the very highest incomes probably don’t have consumption expenditures for the most part that are bigger than $5 million, $10 million -- it’s hard to spend more than that.”