Could the great income inequality in this country have caused the Great Recession?
Apparently, recent economic studies are advancing this idea, to wit, that squeezed middle-class earners, beginning in the 1970s, increasingly borrowed to keep afloat, betting chiefly (and wrongly, as it turned out) that the value of their heavily mortgaged homes would forever rise.
Advanced economies at the time were experiencing sluggish growth, which, the studies say, led to lax regulatory oversight and to a concomitant financial sector bubble “caused by banks overdosing on risky loans.”
So, rather than being a mere side effect accompanying growth, steep income inequality may actually play a role in stunting it, these studies say.
“When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss,” the International Monetary Fund’s study said, adding that “the earnings of the top 1 percent took a knock during the recession, but have bounced back. In contrast, the average working family’s income has continued to decline through the anemic recovery.”
If the above theorizing turns out to be true, then we should, rather than cutting taxes across the board and slashing spending, as Romney and Ryan would have it — more of the same ol’ laissez-faire — change course, and rather than further outfit the ocean liners with more and more amenities, seal the legions of leaky canoes by taxing at the top, eliminating tax loopholes for the mega-rich, and spending on job creation.
An article in the New York Review of Books this summer that looked into the reasons why some countries were rich and some were poor, said at one point, “The most important factor behind their [rich countries’] emergence is the historical duration of centralized government.”
That’s centralized, not de-centralized.
The Obama administration has primed the pump to some degree, though, to my mind, not enough. As far as I can tell — though it’s hard because they never give any details — Romney and Ryan’s policies would be a bust, at least when it comes to recaulking and lifting the myriad boats that are sinking.
And remember, as Mark Shields said not long ago, this country has never elected a president with a Swiss bank account.