Income Inequality and Financial Crises

[discocrisco01]

Source:New York Times

David A. Moss, an economic and policy historian at the Harvard Business School, has spent years studying income inequality. While he has long believed that the growing disparity between the rich and poor was harmful to the people on the bottom, he says he hadn’t seen the risks to the world of finance, where many of the richest earn their great fortunes.

Now, as he studies the financial crisis of 2008, Mr. Moss says that even Wall Street may have something serious to fear from inequality — namely, another crisis.

The possible connection between economic inequality and financial crises came to Mr. Moss about a year ago, when he was at his research center in Cambridge, Mass. A colleague suggested that he overlay two different graphs — one plotting financial regulation and bank failures, and the other charting trends in income inequality.

Mr. Moss says he was surprised by what he saw. The timelines danced in sync with each other. Income disparities between rich and poor widened as government regulations eased and bank failures rose.

“I could hardly believe how tight the fit

Read more at http://www.nytimes.com/2010/08/22/weekinreview/22story.html

[Duer 157099]

1. Sounds like a case of not seeing the forest for the trees

How could one be surprised that there's such a tight connection? :shrug:

[CACD14]

2. But of course

Income inequality is inherently unstable in a society.

[Warpy]

3. This is a case of "well, DUH!" if I ever saw it

This is what they finally realized in the 1930s and how they were able to design programs to get us out of this exact mess back then. All that has been buried in an avalanche of economic theorizing culminating with that fraud Milton Friedman's economic Nobel, which I'm convinced was given for the density of his prose and not the soundness of his reasoning. The wealthy don't want the history of that period well known, it's bad for business. They only allow the unthinkable when they've completely crashed the system and they're afraid their compounds at the ends of the winding dirt roads might be breached by angry mobs.

[txlibdem]

4. So much for the lie that tax cuts for the rich actually creates jobs

Obviously, the rich horde their extra money. That's how they stay rich. Duh.

Once they have bled the middle class dry and there is little to no discretionary money in their hands the economy tanks.

In short, the middle class is the goose that lays the golden eggs for the rich. And they've killed it. Again.