Income inequality is certainly the rallying issue for many progressives these days. Paul Krugman goes as far as to call it the one issue, the only important one. “Inequality is, indeed, the defining challenge of our time. Will we do anything to meet that challenge?” he asked last December.
Whether or not that is overstating the issue, the debate over inequality is not going away soon. Solutions are often elusive, largely because the root of income inequality is far from obvious. The free market system in the US has not always had high levels of inequality, after all. It’s a new feature to anyone who lived through the 1950s, for example.
What caused the problem? Perhaps it is the simple law of supply and demand meeting a limit to the paying work available in a developed economy.
Though the stock market is hitting new highs, many people are less than impressed. It’s commonly believed that the Federal Reserve’s $85B per month spending on mortgage backed bonds is all that is holding things up more than reality. That was backed by the big rally after Bernanke announced the program (aka QE3) would not “taper” in the near future, but continue.
But the truth is that corporate profits are at levels that they have never been before, meaning that there is underlying value in the stock market that is driving the rise. More importantly, corporate profit margins (profit over gross revenues) are also at unknown highs. It points to not only how we get out of the job shortage that is the reason the Fed keeps buying, but also the most obvious ways to close the budget deficit – and gives a little more definition to the boomtimes that probably like ahead in the 2020s.