Reading an article on the debt ceiling crisis by Stephen Gandel in Time, I came upon three paragraphs that keep returning to my mind. A lucid explanation of what is wrecking the American economy and how to fix it.
Income inequality is one of the main factors that caused the financial crisis. But that's not the only way that inequality is haunting this economy. Inequality is probably slowing the recovery as well. So far most of the gains of the recovery have gone to wealthy Americans. Luxury spending is up. So that helps.
But as you put more and more wealth into the hands of fewer and fewer Americans, you get less of a bump from those gains for the overall economy. There's only so much money the rich can spend. Instead, they will take their extra wealth and put it into savings. And what we need right now to boost the economy is spending, not savings.
The debt deal seems to make clear that Washington, at least for now, has no plans to deal with the income gap. Not only that, it seems unlikely that after trying to claim victory in the debt deal, a politician would turn around and say, "O.K., now we need to spend money on programs to boost employment." Our best hope to boost the economy is for some deal to lower taxes, either for corporations or for middle-class Americans. But because there was no deal on raising taxes on the wealthy, it is likely that Obama and the rest of the Democrats will hold the line on the Bush tax cuts and let them expire completely. So taxes for everyone are going up. And that could be another drag on the economy. So why was the stock market down on Thursday? Why wouldn't it be?
The money quotes
"Income inequality is one of the main factors that caused the financial crisis."
"The debt deal seems to make clear that Washington, at least for now, has no plans to deal with the income gap."
If income inequality is driving our recession then the solution to revive our economy is clear. Reduce income inequality in America.
How is it that such an obvious problem with an equally obvious solution is invisible to the President and the Congress?
Washington's failure to come up with a meaningful solution to our economic woes reminds me of a little boy I knew who had great difficulty learning to tie his shoes...because he wouldn't look at his hands when he fumbled with the laces.
This little boy enjoyed the attention of having the grown-ups tie his shoes all day long. He was only pretending to solve a problem because that was expected of him, but he didn't want the solution.
In the same way, our elected government is pretending to fix our economy that they don't want fixed because the solution will cost them personally.