Inequality and Crisis

There is no doubt that economic inequality breeds societal instability. Recent events in the Middle East and in particular Egypt correlate strong with youth unemployment/underemployment, and China remains on guard against inflation wiping out gains of its poorest citizens for the same reason.

Indeed, one could argue that relovultion is is function of just two variables, inequality and populations density - although I had better write a paper on that rather than just assert it.

An arguement is now emerging in the United States, a country with high inequality by OECD (Developed Western) standards, that the GFC is linked to inequality.

The arguement runs, " Poorer Americans’ debt troubles, the logic goes, stemmed in part from their efforts to bridge the gap with the rich by borrowing money. A flood of cash from China, together with enterprising bankers and mortgage subsidies from the U.S. government, created the perfect environment for those efforts to get out of control."

That is as maybe, but I think it overlooks the role of inequality among US richest households. The Gini CoEf is steeper among the top 1% than top 5%, 5 is steeper than 10%, which steeper than 25% etc. In other words, the higher you get the more 'disadvantaged' you feel (so keep it real chump).

Borrowing to finance lifestyle beyond their means is a more forgivable moral failing among the disadvantaged or poorer members of the community, but it is not limited to them. The borrowing I believe was societal wide.

With money coming in on bargain basement interest rate, both rich and poor alike borrowed to satisfy there immediate demands - be a new TV or new Pink and Gold Humvee.

http://blogs.wsj.com/economics/2011/02/19/number-of-the-week-the-perils-of-inequality/?mod=WSJBlog&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Feconomics%2Ffeed+%28WSJ.com%3A+Real+Time+Economics+Blog%29&utm_content=Google+Reader