Economic Double Whammy: America's Growing Wealth Divide Is Actually Putting People out of Work

[xchrom]

http://www.alternet.org/economy/economic-double-whammy-americas-growing-wealth-divide-actually-putting-people-out-work



Barry Z. Cynamon and Steven M. Fazzari, researchers on consumer behavior and how it effects the economy, wrote an op-ed for the St. Louis Post Dispatch in October 2007 in which they predicted that an end to the relentless trend of rising household debt and a subsequent crash in household spending could lead to a killer U.S. recession. Soon after, their prediction came true. Their current work, which examines how high and rising inequality is holding back the American economy, is part of the Institute for New Economic Thinking’s project on the Political Economy of Distribution. They explore how the massive debt which led to the Great Recession, the spending collapse that followed, and the stagnation that persists are all linked to income inequality. In the following interview, they discuss what their findings mean for America.

Lynn Parramore: Why have you decided to focus on inequality in your research?

Steven M. Fazzari: First, as Barry and I developed our research on household spending, debt, and big movements of the U.S. economy, it became clear that the overall trends before 2008 were unsustainable. Households were taking on debt at a rate that couldn’t continue indefinitely. But for each borrower, there is a lender. We got interested not just in the overall trends of debt and spending, but also who was doing the borrowing and lending; which part of the household sector was spending unsustainably? This question led us to think about inequality in a very general sense: the fact that some households borrow and others lend implies that households are different, that is, “unequal.”

Second, there has been a lot of attention on data that demonstrate rising inequality in the U.S. Thomas Piketty’s big book, Capital in the 21st Century, came out in English last spring, but some of the research that his book is based on appeared earlier. I’ve always had an interest in income inequality, perhaps mostly from the perspective of American values and social justice. So I was curious to look at these new data. It turns out that the rise of the income share of high-income households begins at almost the same time as the rise in debt that was the focus of our earlier research. It seemed likely that this correspondence was not a coincidence. I began to see a common thread between the dynamics of inequality and the macroeconomics of U.S. expenditure.

LP: An ordinary person on the street would probably say that if the rich have most of the money, that’s bad for the economy. She’d intuit that if the rest of us don’t have enough money in our pockets to spend on goods and services, the overall economy will suffer. Yet this has been minority view in the field of economics. In fact, many economists have long argued that economic inequality was good for economic growth. What explains the persistence of the conventional view?

SMF: The person on the street typically understands that consumer spending is the source of business sales, and if consumer spending falls then businesses will sell less, produce less, and support fewer jobs. As your question suggests, it is also intuitive that rich households will spend a smaller share of their income. So, the person on the street can appreciate that as more and more income flows into the hands of the rich, it will become more difficult for the economy to generate the sales it needs to support job creation.

[daleanime]

1. K&R....

and duh.

[sakabatou]

2. You don't say!

[Initech]

3. The billionaires have rigged the system. Fuck em all.

The Kochs, the Waltons... All scumbags.

[SammyWinstonJack]

4. !

So, the person on the street can appreciate that as more and more income flows into the hands of the rich, it will become more difficult for the economy to generate the sales it needs to support job creation.

[edhopper]

5. The more people out of work

they more low pay workers available.

Just read The Grapes of Wrath. same shit.

[Arugula Latte]

6. Henry Ford figured that out long ago.

[BlindTiresias]

7. somethin somethin

recovery, look at the official unemployment figures, recovery.