Monday, September 19, 2011

Income Inequality and Stability

There have been a ton of articles on income inequality recently.

Last week the WSJ ran and article on P&G's marketing challenges given the collapse of the middle class. Perhaps the most disturbing aspect of the article was the finding that the US has an inequality ratio comparable to Mexico and the Philippines.

In 2009, the Gini coefficient, a statistical measure of inequality, totaled .468, which constitutes a 20% rise in income disparity over the last 40 years.

The article also noted that at the end of March Americans 6.1 trillion in equity in their homes was 1/2 of 2006 levels.

Byron, Ellen (2011, Sep 12). As Middle Class Shrinks P&G Aims High and Low. WSJ p. A1, A16.

Another article compiling statistics on growing inequality was produced by Michael Snyder of the Economic Collapse Blog. Snyder drew upon new Census Bureau statistics as well as other sources. It is an excellent summary of the data

Now Naked Capitalism has a report on the relationship between inequality and economic turbulence
Income Inequality Produces Indebtedness and Global Imbalances
"The IMF has a passel of articles up on income inequality. “Unequal = Indebted,” by Michael Kumhof and Romain Rancière, focused on macroeconomic effects.
It stars with the observation that countries showing a significant increase of income inequality (defined as the share going to the top 5%) have deteriorating current accounts (note these are all advanced economies; they discuss the glaring exception of China later in the article)..."

Majia here: We can conclude from these disparate reports that income inequality in the US and across the globe is at levels that have not existed since before the Great Depression.

We can conclude also that income inequality poses challenges for many corporations that offer goods and services to the broader population, like laundry detergent and tooth paste.

We see that income inequality doesn't just impact corporate profits, it also produces economic instability within countries and within the global economy.

Finally, we see in Michael Snyder's blog how inequality and poverty impinge against personal well-being and opportunity.

It is important to note with respect to this last point that growing inequality is occurring in a context of collapsing social welfare investments. Most social programs have been cut and public education is reeling from layoffs forced by budgetary constraints.

University education has become unaffordable for many young people given that even public universities now cost upwards of 30k for tuition alone over the 4 year period.

Without massive reforms, entire generations of young people in the US and abroad are going to be denied educational and workplace opportunities.

History is very clear about what happens when entire populations are marginalized and dispossessed.

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