Income Inequality May Take Toll on Growth

“Starting in the 1970s, earnings were squeezed for low- and middle-income households. They borrowed to improve their standards of living — buying bigger houses than they could afford and using those houses as piggy banks. Families bet that housing prices would keep rising, making a three-bedroom outside Phoenix a safe store of wealth. But the housing bubble collapsed, and took the rest of the economy with it.

Research by Raghuram Rajan of the University of Chicago has also underscored the importance of deregulation. ‘Starting in the early 1970s, advanced economies found it increasingly difficult to grow,’ he wrote this year. ‘The shortsighted political response to the anxieties of those falling behind was to ease their access to credit. Faced with little regulatory restraint, banks overdosed on risky loans.’

Thus, inequality might help explain the recession and the sluggish recovery after it. But now, economists and policy experts are facing the thorny and politically freighted question of what the United States’ inequality might mean over the next several years.” (New York Times)

“Deregulation” in the sense that there was not total control of economic activity.

FEE Timely Classic

The Dynamics of Disintervention” by Sandy Ikeda

Inequality Matters” by Sheldon Richman

Bank Deregulation: Friend or Foe?” by Warren C. Gibson

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