Published on: October 14, 2011by Kevin Coupe
Forget about the politics of the situation. Growing discontent with the shape of the US economy is almost certainly going to have an effect on how people spend, and on what.
Bloomberg reports this morning that “a widening gap between rich and poor is reshaping the U.S. economy, leaving it more vulnerable to recurring financial crises and less likely to generate enduring expansions.
“Left unchecked, the decades-long trend toward increasing inequality may condemn Wall Street to a generation of unimpressive returns and even shake social stability, economists and financial-industry executives say.”
The story goes on:
“Since 1980, about 5 percent of annual national income has shifted from the middle class to the nation’s richest households. That means the wealthiest 5,934 households last year enjoyed an additional $650 billion -- about $109 million apiece -- beyond what they would have had if the economic pie had been divided as it was in 1980, according to Census Bureau data.”
And, Bloomberg notes that this trend reinforces what has become a rallying cry for protests taking place all over the country, protests against the fact that “a sliver of U.S. households have enjoyed a disproportionate share of recent economic rewards. Between 1993 and 2008, the top 1 percent of families captured 52 percent of total income gains, according to a 2010 analysis of Internal Revenue Service tax data by economist Emmanuel Saez of the University of California, Berkeley.”
The story says that “such trends have left their mark on public sentiment. Though a majority of Americans reject the idea that the country is divided between ‘haves’ and ‘have-nots,’ those seeing such a divide rose to 45 percent from 35 percent in 2009, according to a Pew Research Center poll released Sept. 29. The sharpest increase occurred among self-described political independents.”
And, Bloomberg goes on:
“The widening chasm between haves and have-nots has tangible consequences. Societies with a narrower gap between rich and poor enjoy longer economic expansions, according to research published this year by the International Monetary Fund. Income trends in the U.S., where the wealthy over time have pulled away from the rest of society, mean that future U.S. expansions could last just one-third as long as in the late 1960s, before the income divide began widening, said economist Jonathan Ostry of the IMF.
“Expansions -- or what Ostry and coauthor Andrew Berg label ‘growth spells’ -- fizzle sooner in less equal societies because they are more vulnerable to both financial crises and political instability. When such countries are hit by external shocks, they often stumble into gridlock rather than agree to tough policies needed to keep growth alive.”
One can argue about the clarity of the goals of the protesters, their politics, or even their motivations. But it almost certainly would be a mistake to underestimate their potential power ... and the Eye-Opening impact they could have on the economy.
To close one’s eyes, to to avert them, is not a responsible option.
- KC's View: