Extreme income inequality needs to be addressed Let's breathe a sigh of relief: The so-called "supercommittee" has failed. Last week, the deadline for the committee to propose spending cuts, with an eye toward deficit reduction, came and went.
The supercommittee was a bad idea for a variety of reasons, but mostly it was dealing with the wrong issue at the wrong time. We're still pulling ourselves out of a recession. Spending cuts would reverse what little progress we've made: Contractionary fiscal policy, surprisingly enough, is contractionary.
Maybe now that the supercommittee has failed and its deadline has passed, our supposed representatives in government will finally start talking about something else. Outside the halls of power, the conversation has already shifted. The media, spurred by "Occupy Wall Street" and like movements across the country, have been talking about deficits less and income inequality more.
Income inequality is nothing new. Some people have always made more than others. Capitalism by its very nature creates both winners and losers, so many Americans, convinced as they are of the virtue of capitalism, shrug off concern about inequality.
While it's true income inequality has always existed, it's also true that it's been getting a lot worse. Between 1979 and 2007, middle-income Americans saw their earnings increase by less than 40 percent. In the same period, incomes for the top 1 percent of earners went up almost 300 percent. That change makes for an enormously wider gap not just between the rich and poor but between the rich and the middle class, and between the rich and the ultra-rich.
We like to think our system rewards the hardest workers, but it seems unlikely that one-tenth of 1 percent of Americans work 300 percent harder today than they did in the '70s, while the rest of us have stayed the same or become lazy.
Rather, the expansion of the income gap was a consequence of policy changes. Rising inequality corresponds to the deregulation of financial markets, and in turn both correlate with rising numbers of bank failures and, ultimately, large-scale economic crises like we experienced in 2008 and still have not recovered from.
Correlation doesn't prove causation, but it shouldn't be surprising that the large-scale transfer of wealth away from people who need it and into the hands of people who mainly use it to create even more wealth for themselves is, ultimately, not sustainable.
The income gap narrowed after the crash of 1929, because the rich lost a lot of money in the crash and because the government imposed new regulations to reign in the financial sector. This time the top 1 percent have proven more resilient, and while the rest of us continue to struggle in a depressed economy, the income gap has not narrowed but continues to widen. A true reversal of the deregulation of the last 30 years has not materialized. Addressing the issue of income inequality has never been more urgent.