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Policymakers Need to Mind the (Income) Gap

Some interesting research-in-progress is emerging from Harvard Business School which, if it turns out to be true, might argue for tighter regulation of Wall Street and social policies geared to closing the income gap.

David Moss, an economist as well as a historian, is researching data that seems to indicate a link between income inequality, lax financial regulation and economic instability.

In essence, the question Moss and other researchers are exploring is whether huge gaps in income, in part widened by decreased financial regulation, put the financial system at risk. It could be that wide income gaps between rich and poor create perverse incentives favoring the rich and powerful that put the financial system at risk.

"If so," writes New York Times reporter Louise Story, "their findings could become an argument for tax and social policies aimed at closing the income gap and for greater regulation of Wall Street."

For more on this idea, read Income Inequality and Financial Crises.

(Image courtesy Flickr user Sushi*ina, CC 2.0)

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