Income gap continues to make economic recovery impossible

The United States' income gap is growing. (Photo Credit: ThinkStock)

The income gap in the United States continues to widen. It’s this gap that makes any real chance of economic recovery for the U.S. next to impossible, argues Steven Pearlstein in a recent op-ed piece for the Washington Post. Pearlstein argues that the Republican method of dealing with the disparity has been to ignore the problem, and the current administration appears to be using the same playbook.

GOP ‘Pledge to America’ doesn’t mention income gap

To illustrate how wide the income gap has become in the U.S., go back to 1976. Then, a third of income went to the upper crust. Fast-forward to  a 15-year run leading up to 2007 that featured the top-earning households sopping up well more than 50 percent of pretax dollars each year. Now, “virtually all of the benefits of economic growth have gone to households that, in today’s terms, earn more than $110,000 a year,” says Pearlstein.

From where did the gap originate?

There are numerous possible suspects to blame for income inequality in the United States. Globalization that increased the flow of workers, goods and money outside the nation is one possibility. The demand for more educated workers is another. Declining unions, industry deregulation and the rising power of financial markets are others that Pearlman counts as “institutional changes.” But when it comes down to it, Pearlman believes that the income gap has been accepted because American society ultimately decided that such income inequality is OK.

So long as the proper balance is maintained

If there is too high an index of inequality (or too low), America’s economic growth and ability to compete on the global stage becomes apparent. Creating bubbles allows Wall Street to feast while average families live in relative economic famine, where payday loans become the only option for many. Many of these families burdened themselves with debt in order to maintain their lifestyle. Pearlstein doesn’t buy the argument that such families had no choice, but the weight of the debt cannot be ignored.

Ultimately, Pearlstein joins the ranks of those who think more government involvement is the answer. Clearly, change is needed to lessen the gap. “People don’t work hard, take risks, and make sacrifices if they think the rewards will all flow to others.”

Sources

Washington Post

Canada is feeling it, too