Growth Stifled by Income Inequality

New studies are showing the slow recovery from the recession might not be due to the skittishness of the “job creators” but due to the fact that a tiny minority has so much more wealth than the rest of the United States population.  Inequality is a serious problem and we have been fed the story that growth will come if we just concentrate even more wealth in a small group of people at the top.  But that hasn’t happened as summed up in these lines:

The recession seems to have cemented the country’s income and wealth inequality, not reversed it. The top 10 percent earn a larger share of overall income than they have since the 1930s. The earnings of the top 1 percent took a knock during the recession, but have bounced back. In contrast, the average working family’s income has continued to decline through the anemic recovery.

The Fat Cats

The Fat Cats

When the Great Depression occurred, the wealth disparity was recognized at the time and was battled through legislation and this was followed by real growth in the U.S., particularly in creating a strong middle class.  The United States became an economic behemoth in the decades after the Great Depression and did it with policies, such as progressive taxes and strong unionization, that reduced income inequality.  Then the policies began to change and the U.S. slowly came back down to the relative economic levels of the rest of the world.  Which begs a question: did they mimic our good policies relative to income inequality or did we mimic their bad ones and is this the cause of bringing the U.S.’ economic growth in line with the rest of the world?

Some may argue the rest of the world would have gained ground over time regardless of the policies but how do we know that for sure?  The fact is we can’t and it is worth pondering whether the growth in the United States would have been even greater in recent decades had the income inequality not been allowed to grow to such dangerous, pre-Great Depression levels.  It is a discussion we should have in this country and, ultimately, a battle worth fighting.

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