Standard & Poor’s: Runaway Inequality Dampens GDP Growth, Leads to Boom/Bust Cycles and Discourages Trade, Investment and Hiring

Inequality Also Dampens Social Mobility, Increases Political Pressure and Produces a Less Competitive Workforce

Standard & Poor’s released a report on inequality today, concluding:

Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring. Keynes first showed that income inequality can lead affluent households (Americans included) to increase savings and decrease consumption (1), while those with less means increase consumer borrowing to sustain consumption…until those options run out. When these imbalances can no longer be sustained, we see a boom/bust cycle such as the one that culminated in the Great Recession (2).

Aside from the extreme economic swings, such income imbalances tend to dampen social mobility and produce a less-educated workforce that can’t compete in a changing global economy. This diminishes future income prospects and potential long-term growth, becoming entrenched as political repercussions extend the problems.

Our review of the data, as well as a wealth of research on this matter, leads us to conclude that the current level of income inequality in the U.S. is dampening GDP growth, at a time when the world’s biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population.

S&P joins many others in concluding that runaway inequality hurts the economy, including:

  • Former U.S. Secretary of Labor and UC Berkeley professor Robert Reich
  • Global economy and development division director at Brookings and former economy minister for Turkey, Kemal Dervi
  • Societe Generale investment strategist and former economist for the Bank of England, Albert Edwards
  • Michael Niemira, chief economist at the International Council of Shopping Centers
  • Former executive director of the Joint Economic Committee of Congress, senior policy analyst in the White House Office of Policy Development, and deputy assistant secretary for economic policy at the Treasury Department, Bruce Bartlett
  • Deputy Division Chief of the Modeling Unit in the Research Department of the IMF, Michael Kumhof

Even the father of free market economics – Adam Smith – didn’t believe that inequality should be a taboo subject.

Numerous investors and entrepreneurs agree that runaway inequality hurts the economy, including:

Indeed, extreme inequality helped cause the Great Depression, the current financial crisis … and the fall of the Roman Empire . And inequality in America today is twice as bad as in ancient Rome, worse than it was in Tsarist Russia, Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America. (More stunning facts.)

Bad government policy – which favors the fatcats at the expense of the average American – is largely responsible for our runaway inequality.

And yet the powers-that-be in Washington and Wall Street are accelerating the redistribution of wealth from the lower, middle and more modest members of the upper classes to the super-elite.

Category: Taxes and Policy, Think Tank, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

3 Responses to “S&P: Widening Inequality Bad for GDP, Good for Boom/Bust Cycles”

  1. DeDude says:

    Really interesting that an organization created to serve Wall Street banksters and the 1% dares to say this truth. Is this the “canary in the coal mine” that finally a majority of those people (or a substantial minority) has managed to “get it”. S&P would certainly not come out with this if they thought that they would end up being condemned as “Commies” by a wast majority of their owners, friends and costumers. Has deductive reasoning taken serious hold amongst the 1%’ers or am I dreaming?

  2. Futuredome says:

    So much for the “struggle” recovering from the great recession. Looks about over.

  3. Rookie says:

    Do people really believe this stuff? Do you really think income inequality discourages hiring and investment? Really? Or, is hiring and investment more affected by the current administration’s disasterous economic policies and relentless attack on the folks charged with hiring and investing in the future of corporate America? The worse thing about this administration and its policies is that the very people he claims to want to help have suffered the most. Think about the growth in welfare and food stamp participants. Now, with the Obama immigration plan, there are more people competing with the poor folks looking for work and for the few jobs that are out there. Not only does it not make sense, it makes Obama/dems look anti-poor/middle-class and anti-minority.