Income Inequality and Financial Crises
For the most part, I am an admirer of professional academics. Their roles as researchers, thinkers and teachers are essential to the maintenance and enhancement of a civilized society.
However, I confess to major reservations about those who work in and for the business schools that now take up far too much otherwise valuable space on most major college and university campuses.
An article in the New York Times for Sunday, August 22, may explain that attitude, to some degree. It also may call for the loudest “DUH” of the year.
The writer, Louise Story, tells us that David A. Moss, an economic and policy historian sheltering under the roof of the Harvard Business School, has “spent years studying income inequality” and “has long believed that the growing disparity between the rich and the poor was harmful to the people at the bottom” (a sort of medium Duh! here) but until recently hadn’t seen any risks caused by such disparity to the “world of finance, where many of the richest earn their great fortunes.”
About a year, ago, said the writer, the esteemed academic followed the suggestion of a colleague that he chart economic inequality and financial crises.
Eureka! The charts showed that growing disparity between the rich and everybody else equates directly with bank failures.
As Ms. Story quoted Moss: “I could hardly believe how tight the fit was –- it was a stunning correlation. And it began to raise the question of whether there are causal links between financial deregulation, economic inequality and instability in the financial sector. Are all of these things connected?”
Yes, indeed. Moss charted economic disparity –- big money at the top, increasing poverty at the bottom of the human pile –- and was shocked to learn that just maybe when the very rich get richer while everybody else gets poorer, general economic crises occur.
Like, maybe, when people don’t have money to buy the stuff peddled by the rich, the rich get hurt, too?
Income disparities before the Great Depression and before our present great recession were the greatest of the last 100 years, Moss discovered.
I know. The shock has taken your breath away. Sit still and breathe deeply for a few minutes.
Or simply slap your forehead and yell DUH!!!! at the top of your voice.
Story goes on at considerable length, noting that many high ranking individuals, such as R. Glenn
Hubbard, top economic adviser to George W. Bush, have never seen income inequality as a factor in economic crises. She also notes that quite a few high rankers remain skeptical of the relationship despite Moss’s research.
And those people not only make big bucks, but they also teach and affect government and corporate policy. Now you can hyperventilate.
Here’s something you can do to counter the power of the bankers: