Mainstream Economists Finally Admit that Runaway Inequality Is Hurting the Economy


But Bad Government Policies Are Making Inequality Worse By the Day

AP reported Tuesday:

The growing gap between the richest Americans and everyone else isn’t bad just for individuals.

It’s hurting the U.S. economy.

***

“What you want is a broader spending base,” says Scott Brown, chief economist at Raymond James, a financial advisory firm. “You want more people spending money.”

***

“The broader the improvement, the more likely it will be sustained,” said Michael Niemira, chief economist at the International Council of Shopping Centers.

***

Economists appear to be increasingly concerned about the effects of inequality on growth. Brown, the Raymond James economist, says that marks a shift from a few years ago, when many analysts were divided over whether pay inequality was worsening.

Now, he says, “there’s not much denial of that … and you’re starting to see some research saying, yes, it does slow the economy.”

As one example, Paul Krugman used to doubt that inequality harmed the economy.  As the Washington Post’s Ezra Klein wrote in 2010:

Krugman says that he used to dismiss talk that inequality contributed to crises, but then we reached Great Depression-era levels of inequality in 2007 and promptly had a crisis, so now he takes it a bit more seriously.

Krugman writes this week in the New York Times:

The discussion has shifted enough to produce a backlash from pundits arguing that inequality isn’t that big a deal.

They’re wrong.

The best argument for putting inequality on the back burner is the depressed state of the economy. Isn’t it more important to restore economic growth than to worry about how the gains from growth are distributed?

Well, no. First of all, even if you look only at the direct impact of rising inequality on middle-class Americans, it is indeed a very big deal. Beyond that, inequality probably played an important role in creating our economic mess, and has played a crucial role in our failure to clean it up.

Start with the numbers. On average, Americans remain a lot poorer today than they were before the economic crisis. For the bottom 90 percent of families, this impoverishment reflects both a shrinking economic pie and a declining share of that pie. Which mattered more? The answer, amazingly, is that they’re more or less comparable — that is, inequality is rising so fast that over the past six years it has been as big a drag on ordinary American incomes as poor economic performance, even though those years include the worst economic slump since the 1930s.

And if you take a longer perspective, rising inequality becomes by far the most important single factor behind lagging middle-class incomes.

Beyond that, when you try to understand both the Great Recession and the not-so-great recovery that followed, the economic and above all political impacts of inequality loom large.

***

Inequality is linked to both the economic crisis and the weakness of the recovery that followed.

Indeed – as we noted in September – a who’s-who of prominent economists in government and academia have now said that runaway inequality harms economic growth, including:

  • Former U.S. Secretary of Labor and UC Berkeley professor Robert Reich
  • Global economy and development division director at Brookings and former economy minister for Turkey, Kemal Dervi
  • Societe Generale investment strategist and former economist for the Bank of England, Albert Edwards
  • Deputy Division Chief of the Modeling Unit in the Research Department of the IMF, Michael Kumhof
  • Former executive director of the Joint Economic Committee of Congress, senior policy analyst in the White House Office of Policy Development, and deputy assistant secretary for economic policy at the Treasury Department,  Bruce Bartlett

Even the father of free market economics – Adam Smith – didn’t believe that inequality should be a taboo subject.

Numerous investors and entrepreneurs agree that runaway inequality hurts the economy, including:

Indeed, extreme inequality helped cause the Great Depression, the current financial crisis … and the fall of the Roman Empire .  And inequality in America today is twice as bad as in ancient Rome, worse than it was in Tsarist RussiaGilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America. (More stunning facts.)

Bad government policy – which favors the fatcats at the expense of the average American – is largely responsible for our runaway inequality.

And yet the powers-that-be in Washington and Wall Street are accelerating the redistribution of wealthfrom the lower, middle and more modest members of the upper classes to the super-elite.

Did you already share this? No? Share it now:
  • Incriminally Sane

    This looks like a cover story for all the people that are awakening to the reality that Americans are ruled by a wealthy elite which was proven when an arrogant (and likely paid off) judge made the poor decision that “Affluenza” was really a justification to clear a rich punk of vehicular manslaughter charges and shows just how out of touch the people in America are when it comes to the underlying causes of the economic inequality happening here.

  • Dave_Mowers

    “Our aim in founding the state was not the disproportional happiness of any one class but the greatest happiness of the whole; we thought that in a state ordered with a view to the good of the whole we should be most likely to find justice.” -Plato 380 B.C.

  • usurykills

    How many of these rich, condescending ingrates will tell you that the “gap” is created by compound interest? Zero. They will act as if there’s nothing we can do. They will tell you interest rates are too low, that money is too cheap. Liars. Thieves.

    People who are not rich not rich pay for everything and do all of the work. This is the status quo. The rich invest at compound interest and the rest of the world pays and pays.

    So, if you are born poor, you get to foot the bill for rich people getting increasing richer. Your children will likely be poorer than you, if you can afford to raise them at all. Wealth accumulates for those born into it — requiring little effort or intellectual design. Just take “interest.”

    Without “interest” (the ancients called it usury) the rich would have to find actual, profitable investments not just demand payment (no matter what.) The control of money should be taken from the banks and returned to the people themselves. It should be our money, not belong to the FED. Money is printed for the cost of ink and paper, why pay for years and years?

    Interest for nothing is the cheat that has enslaved the people of the US for 100 years. A government that allows this is tyrannical.

    The way things are it is nearly impossible for the “not rich” to have any social mobility (upwards, that is.)

    Accepting that usury is any interest at all and that usury is what is killing us is the only hope. End usury now. All else is delusion.

    • Dave_Mowers

      “Based on U.S. tax return data, only 3% of the wealthiest 130,000 Americans are
      entrepreneurs. Most are in management or finance.” –nationofchange (dot) org

  • Tatiana Covington

    And you trust an economist, created by God to make weathermen look good?

  • David Turco

    More main stream nonsense. The wealth disparity never CAUSED the depression or great recession or the fall of Rome. It is a RESULT of corruption and policies that favor the few wealth mongers. What about the actual wealth that these criminals at the top pull in per year, not just their official income, they use the income measure to purposefully under report the actual disparity. And more importantly, what about the fact that so many jobs especially the majority of the newly created jobs do not pay a living wage in the first place.