Saturday, October 23, 2010
Income Inequality a Cause of Financial Crises?
Some economists are speculating as to whether income inequality played a factor in leading to the economic crises of the Great Depression and current recession. Income inequality in 2007 was the greatest it had been since 1928, and some economists are wondering if this is more than just a coincidence. Theories include the idea that increasing inequality caused lower income earners to demand credit beyond their means to keep up, and the idea that concentration of wealth at the top led to riskier investments. Inequality may also slow the economy because the consumers do not have enough money to consume. This article shows that inequality is not simply a moral concern, it may be an economic concern. Regardless, public opinion is mostly tolerable of inequality because the myth of the "American Dream" leads lower income earners to believe that they too can prosper if they work hard.
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I am curious to see if this information affects the upcoming elections and the debate over the Bush Tax Cuts. It is a shocking statistic that income inequality is as bad as it was during the Great Depression.
ReplyDeleteThis is a very intresting article. The proposal that inequality of wealth played a role in the recession makes sense. In an economy it is not always the ammount of money that is important but the flow of money. Having most of the wealth owned by a few people throws off the flow of money.
ReplyDeleteThis article brings up an interesting point that i dont think a lot of people would link to the recession. I agree that this article makes sense
ReplyDeleteI found this article very interesting too. The income inequality may have been the reason banks lowered credit risk and created lo doc and no doc loans. As many borrowers did not have to hand in documentation, some would lie in order to receive the loans and thus the crisis began to grow.
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