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April 18, 2014 / stacieshap

Income Inequality: The “Great Divide” that’s not so great for our Economy

divideSupreme Court Justice Louis Brandeis once said: “We can have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both.”

If you’re not sure which of the two exists in this country today, consider the fact that the 400 wealthiest citizens in America possess 62% of the nation’s entire wealth, while the poorest 47% possess…not a dime. And, the typical CEO of any one of America’s largest companies, is now earning more than 475 times what the average American worker is paid. Way up from 50 years ago when the difference was closer to 40 times.

The United States isn’t the only country dealing with this financial reality, but as is often the case, we are one of the leaders. Likewise, in comparison with other states in the Union, Massachusetts ranks in the top 10.

In a capitalist society a degree of inequality is to be expected, even needed, in order to inspire hard work and innovation. But, there is a tipping point in the narrowing rise of  isolated wealth where the imbalance in monetary distribution becomes a serious detriment to our economy. Sure, it may be true that people with money start businesses and create jobs, but it’s also true that much of what they earn ends up sitting in the bank.

By contrast, when money is put in the hands of people who will spend it, it triggers a virtuous cycle of economic growth; purchases are made – product demand goes up – job opportunities increase – and more money ends up in the hands of people who will spend it.

In America, there will always be wealthy people, and there will always be those aspiring to have more. The problem is, without a reasonable balance between earners at the top of the pay scale and those at the bottom, we risk losing our economic stability as well as our moral footing.

How important is this issue? … President Obama has had to face many challenges throughout his presidential tenure, yet he refers to income inequality as being “the defining challenge of our time.”

Robert Reich with more on Income Inequality


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