The growth of income inequality in the United States from the 1970s until the onset of the current crises is beyond doubt.*
But there are many different ways of measuring and representing the change in inequality. Chuck Marr, of the Center on Budget and Policy Priorities, looks at the distribution of after-tax income in 1979 and 2007 and calculates what the distribution of income would have been in 2007 had the distribution of income remain unchanged. Here’s what he found:
In other words, the bottom 80 percent lost ground and only the top 20 percent gained. And, within the latter group, the top 1 percent made out like bandits.
Why would anyone be in doubt that (a) there was a dramatic change in the distribution of income between 1979 and 2008 and (b) this was one of the causes of the current crises?
*which, of course, doesn’t prevent many mainstream economists from simply ignoring it.
My name links to an explanation using the Harrod-Domar growth model how increasing inequality leads to recessions.
Have you read “The Spirit Level”? Shows how inequality disadvantages everyone, even the well-off. The most fascinating punchline is right at the end of the book. It doesn’t matter *how* greater equality is achieved, just that is is.
Japan and Scandinavian countries are the most equal among the wealthy nations, but Japan has a very narrow range of incomes – that’s their basis for greater equality. The others rely on tax and transfer within an economy of a wide range of incomes, completely different approach, same beneficial outcome.
My review of the book would differ from this one, but it’s a reasonable start.
http://www.guardian.co.uk/books/2009/mar/13/the-spirit-level