People who aren’t concerned with income inequality may be swayed by the emerging argument that it hurts the economy.
Société Générale’s Aneta Markowska names inequality as a major impediment to a U.S. recovery in that it kills the consumer market.
In other words, if too much income accrues to people who will just save the money (i.e. wealthy people) then demand will be sapped, even if total population-wide income stays the same.
Income distribution another big problem. Yet another dimension of the labour market crisis is the extremely uneven distribution of income. We believe that this massive internal imbalance is exacerbating the problem of structural demand and preventing a faster recovery. As of 2008, 48% of national income accrued to 10% of the population. The remaining 90% took in only 52% of income, which is insufficient to maintain mass consumption. During the 2000s, the growing unevenness was overcome by transferring purchasing power from the wealthy to the poor via credit creation, but this process has reached a natural limit. Another solution is needed going forward. In the aftermath of the Great Recession, which saw similarly skewed income distribution, part of the solution was redistribution via taxation. External rebalancing and financial regulation are likely to push things in the right direction over time, but we believe that taxation is an inevitable part of the solution as well.