Posts filed under “Taxes and Policy”

S&P: Widening Inequality Bad for GDP, Good for Boom/Bust Cycles

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

Our Self-Inflicted Economic Wounds

In sports, all great competitors know that they have a choice, even when confronted with daunting, insurmountable odds. They can lay down and let the larger, stronger opponent run up the score. Or they can find a way to compete, to make a game of it. A good loss is a dignified way to show…Read More

Category: Investing, Really, really bad calls, Taxes and Policy

Inversion of the Money Snatchers

The Daily ShowGet More: Daily Show Full Episodes,Indecision Political Humor,The Daily Show on Facebook 7/30/14 – (8:55)

Category: Corporate Management, Crony Capitalists, Taxes and Policy, Television

What if You Were the World’s Greatest Trader® ?

So you’re the world’s greatest trader®? Taxes will fix that. Barry Ritholtz Washington Post, July 27 2014     Imagine the following: You, the investor, believe you have an uncanny skill at picking stocks. You set up an online trading account and begin to buy and sell. As it turns out, you are quite good….Read More

Category: Apprenticed Investor, Investing, Taxes and Policy

Taxing Top Earners: A Human Capital Perspective

Category: Taxes and Policy, Think Tank

What if You Were the World’s Greatest Trader® ?

>   My Sunday Washington Post business section column is out. This morning, we look at the impact of taxes on personal trading accounts. The print version used the headline A harsh reality for all you stellar active traders; the online version is So you’re the world’s greatest trader? Taxes will fix that. The bottom line…Read More

Category: Investing, Taxes and Policy

The Global Retirement Dilemma

Source: Bloomberg Visual Data

Category: Taxes and Policy

How Fat is the Top Tail of the Wealth Distribution?

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

Scotus / Potus Fail

Source: Gallup   Last month, we noted how Congress reached a record low in confidence from the American people. (I blamed you, the non-voting public for allowing the inmates to take over the asylum and turning this into the worst. congress. ever.) As it turns out, it’s not just Congress: Confidence hit a six-year low…Read More

Category: Legal, Taxes and Policy

Freeriding Corporations Need to Pay their Fair Share

Allan Sloan, editor-at-large for Fortune magazine, is angry. And with good reason: He is upset at a lot of U.S. corporate executives who are engaging in “inversion.” This is the process of moving the location of incorporation to a tax haven and skipping out on paying U.S. taxes (short list here). Even though the company…Read More

Category: Corporate Management, Taxes and Policy