Inequality

A really, really good series on inequality that Timothy Noah wrote for Slate finished up today. It was a ten part series that covered all of the usual suspects in terms of reasons given for inequality, and then today made the case why that matters.

I would really urge you to read the whole series, but then I think inequality is a serious issue. I have a couple of friends, however, who disagree. I've had one tell me that rich people make decisions that make them rich and poor people make decisions that keep them poor. End of story. I probably don't need to point out to any of you that I think it is just a tad more complext than that.

But if you are one who things inequality is either a fact of life (a point dispelled pretty easily in the series) or simply unimportant, I'd encourage you to take this point from today's piece to heart.

The United States' economy is currently struggling to emerge from a severe recession brought on by the financial crisis of 2008. Was that crisis brought about by income inequality? Some economists are starting to think it may have been. David Moss of Harvard Business School has produced an intriguing chart that shows bank failures tend to coincide with periods of growing income inequality. "I could hardly believe how tight the fit was," he told the New York Times. Princeton's Paul Krugman has similarly been considering whether the Great Divergence helped cause the recession by pushing middle-income Americans into debt. The growth of household debt has followed a pattern strikingly similar to the growth in income inequality (see the final graph). Raghuram G. Rajan, a business school professor at the University of Chicago, recently argued on the New Republic's Web site that "let them eat credit" was "the mantra of the political establishment in the go-go years before the crisis." Christopher Brown, an economist at Arkansas State University, wrote a paper in 2004 affirming that "inequality can exert a significant drag on effective demand." Reducing inequality, he argued, would also reduce consumer debt. Today, Brown's paper looks prescient.

The last time inequality was this high in the United States was just before the Great Depression. We spent the next 40 years after working on the problem, and then spend the last 30 making it worse again. Perhaps we need to think again.