Fed Board Governor: Inequality May Hurt Growth (Ya Think?)

Posted by Bob Lord

Imagine that? Huff Po reports that a Fed Board Governor, Sarah Bloom Raskin, has "raised the possibility that rising inequality may restrain economic growth for several years."

I suppose we should be encouraged that someone in a position of modest power is starting to see inequality as a negative. But at the same time, it's stunning how cautious and late to the party she is, and she's supposedly a step ahead of her fellow Fed Board Governors.

Did it really take her this long to start worrying that if wealth and income flow out of the hands of people who buy stuff and into the hands of those who chase speculative investments, the economy might suffer?

“In my view, the large and increasing amount of inequality in income and wealth, which has been an ongoing development for decades, may have exacerbated the crisis,” Fed governor Sarah Bloom Raskin said Thursday in a speech delivered in Washington. “More research is required to determine whether it may also pose a significant headwind to the recovery from the crisis for years to come.”

More research is required? No, Sarah, it really isn't. Call Joseph Stiglitz. He'll tell you all you need to know.

But we have to keep telling ourselves: "This is a good development." Heck, in another decade or so, they might even conclude we perhaps ought to do something about inequality.

0 responses to “Fed Board Governor: Inequality May Hurt Growth (Ya Think?)

  1. Inequality has grown every year for the last five years. Higher tax rates don’t reduce inequality, they increase it by reducing the jobs necessary for poor people to escape their situation. Let’s talk about research: Cristine Romer, former President of Obama’s Council of Economic Advisors, does an intensive 40+ year review of taxation at the federal level and concludes that a 1% change in taxation causes a 3.5% reduction in economic output.

    So, Obama’s trillion dollar tax increase can be expected to eliminate the 3.5 trillion in the economic activity needed for the poor.

    Martin Feldstein, one of the top rated economists in the world, duplicates Romer’s research by studying federal treasury data on income tax returns. Edward Prescott, Nobel Prize winner for business cycle theory, shows a direct linear relationship between marginal taxation and job creation for the last 30 years. Richard Rogerson, another top ranked economist, fills out Prescott’s research by showing that welfare also has large impacts separate and apart from taxation. Increased spending on welfare leads directly to lower job growth.

    Filling out one more piece to the puzzle, Lee Ohanian, another world ranked economist, shows that 25% of the job loss during the great depression was due to regulation.

    Filling out another piece to the puzzle is a supporter of higher taxation on job creators: Austen Goolsbee. Goolsbee purports to show that higher taxes on the rich gain at least 60% of what you would expect them to bring in (although he doesn’t translate that 40% loss into economic activity and job loss). However, look closely at his research, he assumes that the trend of economic growth is manna from heaven, a given.

    Obama has proven that if you increase taxes, make welfare very comfortable, and stifle businesses with regulation, you can interrupt stop the trend and that is what has happened. Not an additional hour of work created in 5 years. A huge increase in our welfare population. Declining SAT scores. And, no tax revenue, means no money for teachers.

    How is this good for anybody?

  2. JHannley2@msn.com

    Well done. At times it is breathtaking to observe others so oblivious to the 800 lb. gorrilla in the room. By the time the Fed. actually agrees to study it the oligarchy might consist of only a fee hundred lording over the hundreds of millions of American serfs.