Economists have long argued that a rising wealth gap has complicated the U.S. rebound from the Great Recession.
Now, an analysis by the rating agency Standard & Poor’s lends its weight to the argument: The widening gap between the wealthiest Americans and everyone else has made the economy more prone to boom-bust cycles and slowed the 5-year-old recovery from the recession.
Economic disparities appear to be reaching extremes that “need to be watched because they’re damaging to growth,” said Beth Ann Bovino, chief U.S. economist at S&P.
Shorter post: not surprisingly, the S&P only cares about the income gap when the wealthy are no longer seeing increasing incomes.
The S&P states: “A lifeboat carrying a few, surrounded by many treading water, risks capsizing,”
Finally a metaphor from Wall Street to counter the rising tide raises all boats.
The S&P is correct and the increasing disparity between the wealthiest and the rest of us distorts the economy. The small number of wealthy exert different incentives on an economy than the multitudes of a middle class.
From the article:
Adjusted for inflation, the top 0.01 percent’s average earnings have jumped by a factor of seven since 1913. For the bottom 90 percent of Americans, average incomes after inflation have grown by a factor of just three since 1917 and have declined for the past 13 years.
And almost all of the increase for the bottom 90% came between the years of 1947 and 1980, when their income doubled. A three-fold increase in 100 years when it went up two0fold in the post-War boom.
Things get skewed. This has been going on for 100 years, with no notice by Wall Street.
But why hasn’t the S&P said something earlier. I believe this chart shows why.
I’ve written about this graph before but this one has it broken out into wealth categories. The wealthy and the middle class saw incomes rise in lockstep from 1947 to the early1970s.
They both went up two-fold. During this period, the middle class grew at rates never seen in our history.
Something happened in the early 70s. For the top 5%, the growth in income continued. For the rest of us, income growth stopped.
But, look at the top 5% since 2000. Their incomes have been flat for the last 14 years. All those Bush tax cuts had little effect on the incomes of the wealthiest families. We hear about increasing CEO salaries but even that is not enough.
So while the bottom 20% actually saw their incomes drop over the last 14 years, the wealthy have been treading water.
Or to use the S&P metaphor. the wealthy are now treading water like the rest of us, with fewer people remaining in the lifeboats.
No wonder the S&P has finally started to care. Maybe something will be done to get more Americans in the lofeboats.
But I’m not counting on it coming from most of the politicians we currently have. They are mostly minions of the wealthiest to begin with.