Saturday, August 15, 2009

Why Income Inequality Is Bad for the United States

Look at the chart in the previous post and it is obvious that less inequality coincides with times of economic prosperity (the Roaring '20s, the 1950's and 60's). Greater inequality leads to economic decline (the spike in 1928-29 leading up to the Great Depression). The persistent growth in inequality that began in the mid-1990's has lead to the prolonged economic distress that has plagued the United States throughout the 2000's.

Empirically, this should be obvious. As income is concentrated among the least productive members of society, the idle rich, the incentive to work decreases. Why work hard when my family will still starve and I'm just making the bastards richer?

Inequality means a larger proportion of the GNP is consumed by unproductive activities such as monetary speculation. As demonstrated in 1929 and 2008, when the economy becomes dominated by the wealthy playing at financial jiggerypokery, a collapse is inevitable. The financial speculation that created the current recession (depression) was a worthless exercise. It created nothing of value. It was just playing roulette with billion dollar chips.

Inequality disrupts politics as the Super Rich can afford to buy entire political parties. This creates a society where corruption reigns and democracy suffers.

For those of a scholarly inclination, here is a study of Income Inequality and Economic Growth in the U.S.

The bottom line is if the inequality that concentrates so much income to 30,000 elites is not corrected then the weak signs of recovery will pop like a thin soap bubble and we will descend into an even deeper economic depression.

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