Income inequality


December 23, 2016

Kathy Kristof of Practical Investing says, “Soaring executive pay is helping to fuel income inequality.” We have all heard stories of inequality as a threat to the economy and when it becomes extreme, the stalled or falling income of the poor and middle class leads to less spending, which leads to less demand, which leads to less production, and so it goes.

The father of modern economics, John Maynard Keynes, encouraged governments to use monetary policies to stimulate business, and his policies, put in place by the Feds in 2008, kept the recession from becoming a depression. Since then, the Federal Reserve has kept interest rates low to encourage growth at the expense of investors.

The stock market has rebounded and savings have grown in spite of low returns, but the Congressional Budget Office says income, based on inflation adjustment, has declined for all but the top 20 percent.

Many economists assume people will borrow to buy, but consumer spending, which makes up two-thirds of U.S. economic activity, has not loosened the hold on American wallets. Americans aren’t shopping more because they can’t afford to.

While it may be difficult for small business to raise wages, that shouldn’t be the case for large, publicly traded companies. When a well-known CEO received stock options worth $77 million, that would have equated to 57 shares for each of the company’s 122,000 employees worth $663.

To spend more, Americans need to make more but how much really trickles down when only the 1 percent get a raise?


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