The Economic Crisis and Inequality

Excellent video of an interview with a Stephanie Sequino, a Professor of Economics at the University of Vermont. What Stephanie Sequino is suggesting is that one of the factors (maybe the primary factor) that contributed to the economic crisis was the rising income inequality. Maybe one reason that I like the video is that it is similar to an argument that I made in a post (We are the 99%) a couple of years ago. I recommend watching the video, but the basic argument is that rising inequality since the 1970s lead to increases in company profits (money that – in an ideal world – should have gone to the employees in the form of higher salaries). Some of this would have been used to pay off debt or invest in the financial sector. The rising inequality, however, impacted on the consumer base for these companies. The excess capital in the financial sector was, however, targeted at people who, in the past, would have been regarded as credit risks and were the very people who’s salaries were stagnating. In a sense, rather than this money going to these people in the form of salary increases, it went to them in the form of loans. They still spent this money, but they had to pay it back with interest. Companies therefore won twice because they sold their products and the money used to buy these products was their capital which they then recovered with interest. They should really have lost this money when the financial crisis hit but, of course, the banks were bailed out and so their investors did not lose as much as they should have had we followed a true free-market policy. I think it is a very sensible argument and applies to the UK as well as the US. The real concern I have is that nothing that is being done today appears to be attempting to address income inequality. If anything it is doing the reverse and I can’t see how our economies can recover until we address this issue.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s