Monday, February 13, 2012

Another reason to object to income inequality

Increasing inequality might be acceptable if it led to more income and more wealth for everyone. As it seems to slow growth of GDP, it is not only challenged on an ethical basis, but on a practical basis.

In his article "Study: Income Inequality Kills Economic Growth" in Mother Jones,  Josh Harkinson refers to recent data which adds to the credibility that more income inequality leads to less economic growth. Of course, there are other factors which seem to encourage (or discourage) growth, but income inequality seems significant. Note that the Latin American countries that have long been marked by income inequality have also not grown economically as fast as desired.

In general, one would assume that the longer growth spurts last (between economic contractions), the greater will be the long term growth of the GDP.

I quote from the article:

Marriner Eccles, the Depression-era chairman of the Federal Reserve (and an architect of the New Deal), blamed the Great Crash on the nation's wealth gap. "A giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth," Eccles recalled in his memoirs. "In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped." 
Many economists believe a similar process has unfolded over the past decade. Median wages grew too little over the past 30 years to drive the kind of spending necessary to sustain the consumer economy. Instead, increasingly exotic forms of credit filled the gap, as the wealthy offered the middle class alluring credit card deals and variable-interest subprime loans. This allowed rich investors to keep making money and everyone else to feel like they were keeping up—until the whole system imploded.
I also worry about the political impact of the inequality, as the very rich (getting richer) use their economic (and increasing economic) power to buy political influence to protect and increase their wealth, often at the expense of the other 99 percent.


WiseFather said...

The growing awareness about the extreme income inequality and the very wealthy's grip on our political system indicate that some form of class war is all but inevitable. I am developing a set of ground rules for a possible class war that would guide it in a peaceful and productive direction. The Rules for the Class War begin at this post: I am open to hearing everyone's comments and suggestions.

John Daly said...

The Occupy movement depicts itself as representing the other 99 percent. But the top one-tenth of one percent that is absorbing an even more disproportional part of the nation's wealth. So where is the line to be drawn. Especially since some of the richest seem quite willing to share their wealth and to use it for the benefit of the poor.

The basic point of my post was that we all should seek a more equatable distribution of income and wealth since the future of the nation depends on it.