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Inequality vs Sustainable Growth

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Is wealth and income inequality holding the economy back?  A recent study by the Pew Foundation shows that from 2009-2011 the wealthiest 7% of the US saw their net worth climb 24% – to an average of nearly $3.2M – while the other 93% of the population saw their wealth plummet 7%.  More than being unfair, it may also be holding back economic growth overall.  The rich may be happy with their take, but it may stop coming.

A number of studies have shown the effect over a number of countries, and the effect is undeniable.  At what point does income and/or wealth inequality slow growth?  Like an excess of debt it’s hard to say, but the two taken together lead to a compelling argument that the search for sustainable, meaningful growth is a strongly bipartisan, left and right issue – and something we should get moving on as a priority.

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Inequality Becomes Intolerable

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How bad has wealth inequality become in the US?  Thanks to a video that is becoming viral, a new discussion about inequality has fired up – sadly, just after our election cycle.  It takes off from work done 6 months ago by Dan Ariely and Mike Norton, first reported humbly in a simple blog.  But thanks to new graphics and explanation it’s lighting up the ‘net in a way not seen before.

As discussed previously, income and wealth inequality is the best indicator of a future slowdown in economic growth around the world.  More attention to this problem is certainly a good thing.  But the context of how this comes to be and what can be done about it remains elusive.  Let’s take a long view and see where the problem came from – and what can be done about it as we work to set up the next period of expansion that comes after the Managed Depression we are in now.

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It Works Out – Because of the Bad Stuff

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Over the past year, we’ve been discussing how the current depression might end.  Two distinct scenarios have emerged as the likely candidates – a slow return to work for everyone as small companies complete a transition to a new economy and a collapse of the world’s economic system.  Which will it be?

There is plenty of evidence for both.  The decline in people of working age in the developed world (and soon the developing!) points to more opportunity and higher wages once everything evens out – something like a golden age.  But the recent World Economic Forum and ongoing trauma in Europe highlight the obvious weakness at the top, starting with leadership.

The best answer for crystal ball readers is an obvious one – both might happen simultaneously.  That’s not a punt, it’s a statement of deep belief that, in the long run, the Free Market is probably going to work.

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Inequality

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Income inequality is one of those things that we find almost impossible to talk about in US politics.  Simply raising the issue automatically leads to charges of “class warfare”, a term that is empty enough in meaning to raise emotions without much intellect.  Yet it is important.

One of the great features of recent global economic turmoil is the downturn in the developed world amid continued growth in the developing world.  What’s the main difference between the two?  According to a survey by the Economist, one of the main features is that the developing world generally has increasing income equality but the developed increasing inequality.  Emotional arguments aside, there is a distinct trend that raises real questions of global competitiveness, at the very least.

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