Income Inequality and the Economy

Here’s a brief, but important article that explains the trajectory of the economy as a result of Reagan’s tax cuts in the early 1980’s.  The top 5% of the workforce increased its income dramatically, while the lower 95% stagnated.  The lower 95% continued to spend, however, by borrowing more money on the increased value of their houses.  This spending came to an abrupt halt in 2008 with the Great Recession, and has not recovered due to “deleveraging.”

See the article here: http://www.rooseveltinstitute.org/econobytes-thursday-january-16-2014.    It is referenced in Paul Krugman’s opinion piece in the New York Times online.  Krugman says that the Republicans in Congress now are using the deficit as an excuse to make matters worse, by slashing safety-net programs for the poor.  By contrast, the Republicans are not proposing anything to help improve the severe income inequality that is now hobbling the economy.  See Krugman’s piece at: http://www.nytimes.com/2014/01/24/opinion/krugman-the-populist-imperative.html?hp&rref=opinion

Krugman goes in to much more detail, repeating himself relentlessly on points that we really need to understand.  He’s calling for Obama to start supporting programs that reduce income inequality, and he has polls that show the majority of Americans support this policy.  Even Republicans, at least the rank and file, seem to be beginning to understand the need to support the lower 95% of the population.