US: Inequalities causing slower growth

[viper37]

New York Times piece

Standard and Poor's report
Interesting read.

Is income inequality holding back the United States economy? A new report argues that it is, that an unequal distribution in incomes is making it harder for the nation to recover from the recession and achieve the kind of growth that was commonplace in decades past.
The report is interesting not because it offers some novel analytical approach or crunches previously unknown data. Rather, it has to do with who produced it, which says a lot about how the discussion over inequality is evolving.
Economists at Standard & Poor's Ratings Services are the authors of the straightforwardly titled "How Increasing Inequality is Dampening U.S. Economic Growth, and Possible Ways to Change the Tide." The fact that S.&P., an apolitical organization that aims to produce reliable research for bond investors and others, is raising alarms about the risks that emerge from income inequality is a small but important sign of how a debate that has been largely confined to the academic world and left-of-center political circles is becoming more mainstream. Photo      Beth Ann Bovino, the chief U.S. economist at S.&P., spoke at a panel of financial market experts, investors and opinion makers in Washington last year.  Credit Greg Gibson/Bipartisan Policy Center           "Our review of the data, as well as a wealth of research on this matter, leads us to conclude that the current level of income inequality in the U.S. is dampening G.D.P. growth," the S.&P. researchers write, "at a time when the world's biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population."
To understand why this matters, you have to know a little bit about the many tribes within the world of economics.
There are the academic economists who study the forces shaping the modern economy. Their work is rigorous but often obscure. Some of them end up in important policy jobs (See: Bernanke, B.) or write books for a mass audience (Piketty, T.), but many labor in the halls of academia for decades writing carefully vetted articles for academic journals that are rigorous as can be but are read by, to a first approximation, no one.
Then there are the economists in what can broadly be called the business forecasting community. They wear nicer suits than the academics, and are better at offering a glib, confident analysis of the latest jobs numbers delivered on CNBC or in front of a room full of executives who are their clients. They work for ratings firms like S.&P., forecasting firms like Macroeconomic Advisers and the economics research departments of all the big banks.
The key difference, though, is that rather than trying to produce cutting-edge theory, they are trying to do the practical work of explaining to clients — companies trying to forecast future demand, investors trying to allocate assets — how the economy is likely to evolve. They're not really driven by ideology, or by models that are rigorous enough in their theoretical underpinnings to pass academic peer review. Rather, their success or failure hinges on whether they're successful at giving those clients an accurate picture of where the economy is heading.
In that sense, the new S.&P. report is a sign of how worries that income inequality is a factor behind subpar economic growth over the last five years (and really the last 15 years) is going from an idiosyncratic argument made mainly by left-of center economists to something that even the tribe of business forecasters needs to wrestle with.
I asked Beth Ann Bovino, the chief U.S. economist at S.&P., why she and her colleagues took on this topic. "We spend a lot of time trying to think about what's the economic outlook and what to expect ahead," she said. "What disturbs me about this recovery — which has been the weakest in 50 years — is how feeble it has been, and we've been asking what are the reasons behind it." She added: "One of the reasons that could explain this pace of very slow growth is higher income inequality. And that also might also explain what happened that led up to the great recession."
"From my research and some of the analysis I saw from others, when you have extreme levels of inequality, it can hurt the economy," she said.

[garbon]

Where's the exec summ?

[derspiess]

Where's the exec summ?

Apparently we need to get more people in college.

[CountDeMoney]

Where's the exec summ?

The poors are holding back the wealthy.

[viper37]

Where's the exec summ?

"From my research and some of the analysis I saw from others, when you have extreme levels of inequality, it can hurt the economy," she said.

[Malthus]

Where's the exec summ?

Apparently we need to get more people in college.

[Ide] JDs for all! [/Ide]

[derspiess]

[viper37]

Where's the exec summ?

Apparently we need to get more people in college.

it's the only politici policy they aim at.  the rest is just fact figures.

[MadImmortalMan]

The fed is pumping up the stock market but not wages. And holding down bond rates. What did we expect would happen?

[CountDeMoney]

The fed is pumping up the stock market but not wages. And holding down bond rates. What did we expect would happen?

The Fed doesn't raise wages, employers do.
And why should employers raise wages, or hell, even hire people:  that impacts profit maximizationalism and shareholder value.  They've been cheating American workers for decades against the cost of living, so why start now, especially when they're sitting on record historical amounts of cash reserves?

Employers have the right not to elevate wages.

[Admiral Yi]

I think S&P is playing kissy face with the White House to mitigate the upcoming bond fraud trial. 

[derspiess]

The fed is pumping up the stock market but not wages. And holding down bond rates. What did we expect would happen?

The Fed doesn't raise wages, employers do.
And why should employers raise wages, or hell, even hire people:  that impacts profit maximizationalism and shareholder value.  They've been cheating American workers for decades against the cost of living, so why start now, especially when they're sitting on record historical amounts of cash reserves?

Employers have the right not to elevate wages.

Maybe the Fed should stop pumping up stock market then.

[CountDeMoney]

Maybe the Fed should stop pumping up stock market then.

No shit, not like that rigged system needs any help.

[crazy canuck]

Where's the exec summ?

That presumably educated people cant read a short article in the first post of a thread.

[The Minsky Moment]

The Fed neither targets the equities markets nor does it buy stocks.