How Rising Inequality Stunts the U.S. Economy

Last Updated Apr 5, 2011 7:17 PM EDT

Big deal, you say -- so the country's riches are increasingly flowing to the rich. Economist Joseph Stigliz succinctly explains why that's a problem:
An economy in which most citizens are doing worse year after year -- an economy like America's -- is not likely to do well over the long haul.
Why? Because growing wealth at the top of the heap is an indication of dwindling opportunity for everyone else. It means the economy is not functioning efficiently and making wise use of so-called human capital. Inequality is also evidence of other distortions, such as monopoly power, low corporate tax receipts and out-of-control banks.

Those factors heighten inequality, further distorting the economy. And so the pattern snacks on itself. Want to see inefficiency in action? Observe the steady stream of our "best and brightest" young people into finance, rather than something more useful, like medical research (or blogging).

Women and children last
Another casualty of inequality -- the public good. As the super-rich grow richer, they tend to become less willing to invest in the commonweal. Education suffers. Bridges and roads crumble. Mass transit systems sprout weeds. Infant mortality rises, and life expectancy falls. After all, Stiglitz writes:

The rich don't need to rely on government for parks or education or medical care or personal security -- they can buy all these things for themselves. In the process, they become more distant from ordinary people, losing whatever empathy they may once have had.
Although the rise of inequality in America is not fully understood (or even widely perceived), Stiglitz notes it involves multiple factors: globalization-fueled labor arbitrage; displacement of workers by technology; the decline of unions; corporate tax evasion; lax antitrust enforcement; weak financial regulation.

Where have you gone, Joe DiMaggio?
There are many other causes, but it's worth singling out our dysfunctional campaign-finance system. Forget partisanship. When Republicans and Democrats alike bed down with Wall Street in exchange for campaign contributions and corporations are free to buy influence in Congress -- Washington, we have a problem.

Here is the greatest cost of inequality:

[T]he erosion of our sense of identity, in which fair play, equality of opportunity, and a sense of community are so important.
Indeed, for all the heated rhetoric on Capitol Hill about balancing budgets and restoring fiscal sanity, almost no one talks about basic issues of fairness and class conflict. Thrift is the order of the day. But spending cuts are a means, not an end. They can't save us from ourselves.


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    Alain Sherter covers business and economic affairs for