To boost economy, reduce the income gap

December 17, 2013 

The Associated Press surveyed more than three dozen economists to find out what most shopkeepers could have told it: The richer getting richer doesn’t lead to more buying.

The rich are enjoying a surge in wealth from robust stock market gains, but it’s only when low- and middle-income people have more to spend that the economy rises, the economists said.

“What you want is a broader spending base,” said Scott Brown, chief economist at Raymond James, a financial advisory firm. “You want more people spending money.”

What’s wanted – broad gains in income – is not what the great majority of Americans will be getting this Christmas. Pay for low- and middle-income earners is barely rising, and the gap between the rich and the rest shows no sign of slowing its expansion. The result of flat incomes for most is flat consumption overall.

The most recent census figures reveal, the AP reported, “that the average income for the wealthiest 5 percent of U.S. households, adjusted for inflation, has surged 17 percent in the past 20 years. By contrast, average income for the middle 20 percent of households has risen less than 5 percent.”

What may be changing is that growing income inequality is moving from a moral debate about fairness to a practical discussion about its economic effect. That’s a good change. President Obama has moved the discussion that way. With luck, the mid-term election will take it further.

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