Tuesday, January 21, 2014

21/1/2014: Four Reasons to Worry About Income Inequality

Not being a fan of 'relative poverty' concept for a number of economic reasons, here's my real concern:

Source for both charts: http://www.oxfam.org/sites/www.oxfam.org/files/bp-working-for-few-political-capture-economic-inequality-200114-summ-en.pdf

The core concerns I have are that

  • Extreme disparities of wealth and income distributions can lead to inequality of opportunity and, as the result, to non-meritocratic distribution of wealth and income over generations. 
  • Extreme divergence in wealth and income distributions can lead to the decline of democratic participation and thus to a rise in political extremism.
  • Extreme differentials in income inequality the wake of a major economic crisis compound long-term effects of the crisis and reduce the rate of recovery, including structural recovery.
  • In the current crisis, the core cost of the crisis befell the highly indebted households, primarily from middle and upper-middle classes, plus lower-skilled unemployed. Exit from the crisis, therefore, requires repairing their balancesheets more robustly than the balancesheets of the top 1% earners. The fact that we are witnessing the opposite effect tells me that the underlying causes of the crisis have not been addressed. We have wasted trillions in scarce economic resources and achieved preciously little for it.
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