Suddenly, economic inequality is a hot topic. The gap between the rich and poor has been growing for over 30 years, but a tipping point in our collective consciousness has now been reached. What made this possible? (For a review of the issue, see Slate: “The United States of Inequality”)
For a decade, cheap credit obscured the increasing impoverishment of the middle and lower classes. When the poor could buy a house with no money down and vague terms they did not fully understand, they did not feel so poor. When the somewhat better off could take out home equity loans to compensate for declining real income and run up debt with a fist full of credit cards, they continued to believe in the American dream. But, then, the bill came due, and economists and journalists started paying attention. As a result, now we are all thinking about it too.
It’s also obvious that the rich are not suffering nearly as much as the poor. The stock market is going up, and Republicans are agitating for tax cuts while continuing to fight government expenditures on unemployment insurance and programs to stimulate the economy. Not threatened by destitution, they are comfortable taking the long view about the recovery. They worry about long-term debt instead of short-term misery.
The Great Recession is “over,” declares the Treasury Department. That’s interesting but hardly helpful for those who face permanent unemployment or continual underemployment or those who can’t sell their houses or pay tuition for their children. Their relief is hardly palpable.
It is tempting to think that the expansion of credit for the poor was designed to placate those who real income was declining for 30 years, but it was probably just another way for the financial industry to make money. Slicing and dicing the mortgages and issuing securities based on those “assets” pushed sales. It’s the way our system works. But it is meaningful that the market for those securities was based on the hopes and dreams of homeowners. Economists tend to think that consumers are motivated by rational self-interest, but in thus case at least it was denial and irrational aspirations that drove the system – until, wildly over-extended, it collapsed.
Now that the dust is clearing, we see two camps – and two points of view. The disillusioned, waking up from their cheap credit binge, are in greater pain. Bewildered, they don’t know who is to be blamed, but are inclined to turn against the government. Those better off look forward to resuming the acquisition of wealth.
The net result may well be that the gap will grow only wider.