Inequality and the Business Cycle

December 30th, 2013 at 12:54 pm

Over at the NYT Economix blog.  Because of large capital losses when bubbles burst, inequality falls pretty sharply–temporarily…around a rising trend–when the economy tanks.  But now that the recovery is underway, inequality’s back on the rise, as seen by recent aggregate data (see figure in NYT piece) and less-up-to-date-but-more-detailed CBO data on household income.

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3 comments in reply to "Inequality and the Business Cycle"

  1. Tom in MN says:

    Also take a look at the plot in this post:

    as soon as wages start to get headed upward the Fed puts on the brakes. This has to be one of the causes of growing inequality.

    Your comment about the financial transactions tax paying for the extra safety net programs being just is very true. If you have plenty of money you look at recessions as a chance to make money by buying stocks on the way down. Not something you do if you are worried about having enough to even retire or have nothing in the markets at all and are most likely to loose your job in a downturn. The rich make money by buying the stocks that are sold out of fear and taking some of those gains for those that don’t have enough to eat seems right.

  2. smith says:

    I agree with extended unemployment benefits, afinancial transaction tax, higher minimum wage with indexing, and spending for full employment.

    I disagree with larger Earned Income Tax Credits, or subsidized jobs. They are a form of corporate welfare and put businesses paying fair wages at a competitive disadvantage. Also the EITC could eventually be entirely replaced by increasing the minimum wage another $2.50 over the current proposal of $10.10. Subsidized wages are not a substitute for programs that assist long term unemployed and other special classes find work. Creating government jobs, aid to states to restore cuts, or spending that creates new jobs (especially on research and development or infrastructure repair, environmental, food and drug safety, health care) is a better way to create a tighter job market. Another consideration is the extra hours being worked without pay. Not only do exempt workers not get time and a half, they get nothing, they work for free, while at the same time worsening the job market for everyone and promoting inequality. Not only should exempt status (expanded in 2005) be eliminated for everyone, but the standard work week should be reduced to 35 hours. Phase it in over 10 year period if necessary. After 73 years, isn’t it about time?

    Also, please don’t talk about the economy without mentioning continuing high rate of home foreclosures, over a million in some state of foreclosure.

  3. wrjohn says:

    I posted a comment on the Economix blog under the name Bill. You need to read it.
    The most unexpected damage done by income inequality shows up in the Social Security trust funds. The bottom 90% report less than 5% of their income as unearned and the income level to be in the top 10% is above the level where SS taxes are no longer collected. These two exceptions largely offset each other and I have kept a spreadsheet which tracks the SS taxes not collected on the share of income gained by the top 10% and lost by the bottom 90% for each year since 1980.
    If these lost SS tax revenues are compounded at 4% (I believe this is the rate the trust fund always earns) the spreadsheet shows a loss to the SS trust fund of over $3 trillion. That would have solved most of SS’s problems.