"The concentration of income in the hands of the rich might not just mean a more unequal society, economists believe. It might translate into less stable economic expansions and more sluggish growth."
The above quote comes from this article published today in the New York Times. The author mentions how income inequality can lead to political instability, violence, and economic destruction in developing countries such as Syria. Besides slow economic growth, what do you think may be in store for the U.S. if nothing is done about income inequality?
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ReplyDeleteI think that it makes a lot of sense that inequality is inversely related to growth. The entire makers/takers debate is predicated on the idea that a class of people is responsible for the vast majority of the nation's productive capacity. This distinction, however is itself predicated on the idea that those with money are more capable of creating economic production. To a point, this makes sense, in order to be an entrepreneur one either has to have enough money to invest in a business, or has to borrow money to invest in that business. The poorer the borrower, the greater the proportion of their profits will be eaten by paying back their loans, and the greater share will be redirected to those rich people who run and own the banks. Conversely, if middle (and even lower class) individuals made enough to accrue enough savings and possibly start their own businesses, their profits would not be destroyed by the rent seeking activities of the very wealthy. This also helps explain why the wage gap is at the top 1% and not the top 10% of Americans. How can growth, which is largely driven by consumption, possibly increase when a portion of most business' profits are diverted to the individuals with the most inelastic consumption. Essentially, the reliance upon and profitability of lending in the American economy could act as an implicit tax on growth by not recycling profits into the economy as effeciently.
ReplyDeleteThe slow economic growth I think would turn back into a recession. Based on the article, low and middle class citizens are earning less and the wealthy are taking more. The poverty community is going to increase dramatically at this rate and the economy will collapse again but even worse. People will have to sell their houses and buy cheaper and less goods and find loop holes around buying things that won't help the economy at all. Giving the wealthy more to buy with will not help out the economy at all but giving back to the people who live paycheck to paycheck to at least keep their standards of living to keep the economy growing is what is needed right now.
ReplyDeleteI think one of the most alarming aspects of this article is the idea presented that economic inequality most likely has a much greater effect on economic growth that several other factors. Much focus in on trade, investment and jobs to spur economic growth, however, one of the main contributors to our slow economy is the economic inequality. This inequality is a great way to help explain our recent struggles and sluggish economy in the past. Furthermore, it seems as if this inequality does not take a drastic change then our overall economy could be in a downturn for a great deal of time.
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