America's big wealth gap: Is it good, bad, or irrelevant?
The gap between rich and poor is at its widest since the Roaring '20s. Obama complains that it's unfair, but a growing chorus of economists and sociologists say it's worse than that.
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If the share of earnings going toward pay for labor (as opposed to corporate profits) had held constant in recent years, then overall activity in the economy "would be a bit higher than it is now," says Nigel Gault, chief US economist at the forecasting firm IHS Global Insight in Lexington, Mass.Skip to next paragraph
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Inequality may be affecting growth in other ways, Mr. Gault adds. Disparities of income can mean that people lose faith that there's a fair economic playing field and that hard work will pay off. It can also mean that millions of people lack access to a good education. To the degree that these negative forces are operating, America is failing to tap the potential of its "human capital."
Wesley Pointjour, who is getting a degree in business management, will soon be testing the market for his own human capital. The resident of Cambridge, Mass., says he's optimistic that he'll find work when he graduates in May. [Editor's note: Mr. Pointjour's name was misspelled in the original version.]
At the same time, he sees ways that inequality may be hindering the economy.
"Obama's address the other night, that was big," Mr. Pointjour says. "He spoke about being fair and how to ... get the economy flowing again."
The definition of "fair" may depend on individual vantage points, Pointjour allows. But he says that better schools, for instance, might make a difference for people who grow up in lower-income neighborhoods, as he did.
Mr. Milanovic of the World Bank sees this point about education as an important reason that more economists are viewing inequality as bad for growth. "When physical capital mattered most, savings and investments were key," he writes. "[Now] widespread education has become the secret to growth. And broadly accessible education is difficult to achieve unless a society has a relatively even income distribution."
It's bad for US society and politics
To Ben Guaraldi, who teaches computer programming in Cambridge, Mass., America's income divide hits home first and foremost in the political system, as wealthy people and corporations wield an outsize amount of power.
"Some of them aren't really aware of the effects" of the policies they push for, he says. To Mr. Guaraldi, a registered independent, the unfavorable results may include a weaker economy and poorer policies on other fronts, as politicians feel pressure to serve the interests of their financial backers. He, for one, hopes to see stronger government action to confront the threat of climate change.
Many Americans, even ones with very different political leanings, echo that view about money in politics. The rising power of corporations and the rich, coupled with the weak economy, has coincided with an erosion of public trust in governing institutions like Congress and the Federal Reserve.
Some thinkers even say America's very survival is at risk, if steps aren't taken to restrain the widening income divisions. Bruce Judson of the Yale Entrepreneurial Institute has estimated that the US is partway down a path of economic polarization that, based on patterns seen throughout history, could lead the country toward dissolution and revolution. He's not predicting that outcome, but asserts that the scenario is not as far-fetched as it may sound.