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Income Inequality Is the Enemy of Economic Growth: Robert Reich

Daily Ticker

Just hours after Yale professor Robert Shiller won the Nobel prize for economics Monday he told the Associated Press: "The most important problem that we are facing today...is rising inequality in the United States and elsewhere in the world."

Former U.S. Labor Secretary Robert Reich could not agree more.

"Of all the advanced economies, we are the most unequal and we are surging forward greater inequality at the fastest rate," Reich tells The Daily Ticker. "The 400 richest Americans own more wealth than the bottom 150 million Americans put together."

Related: More Proof that the Rich Are Getting Richer and the Poor Poorer

According to "Inequality for All," a new film that Reich narrates, the wealth gap in the U.S. is as wide as it was in 1928, just before the Great Depression. The richest 1% of Americans own more than 35% of the country’s wealth, while the bottom 50% control just 2.5%.

At first glance that sounds like good news for the wealthy in this country, but Reich disagrees. "The rich would do better with a smaller share of a rapidly growing economy because [then] the middle class has more purchasing power and could help it grow," he says.

Related: "We have Become a Nation of Hamburger Flippers": Dan Alpert Breaks Down the Jobs Report

The annual income of the typical American household has fallen 9% since 1999, according to a recent report from the Census Bureau. Much of the decline was due to the Great Recession; since the recession ended in 2009 incomes for all Americans except the top 1% have hardly changed. Incomes grew by only 4% for the bottom 99% but surged by more than 31% for the top 1%. And last year the top 1% accounted for 22% of the nation's income; the top 0.1% took home half of that.

"Inequality is an enemy of economic growth," says Reich. He suggests that growth would be stronger if inequality was smaller. "Given how low we sank in 2008-2009 we would have to get growth of 4% or 5%" to get back on track, says Reich. "If we're lucky we'll be in the 2% range and it may be substantially below that given the shutdown and potential debt default."

Related: The Great Wage Debate: Should Companies Pay Workers More?

Inequality is also a political choice, according to another Nobel Prize-winning economist, Joseph Stiglitz. In a recent New York Times blog he blames the rise of American inequality on underinvestment in infrastructure, education, health care and social safety nets.

Reich offers his own prescription to reduce inequality:

  • Invest in education and job training
  • Upgrade the nation's infrastructure
  • Reform the entire tax system, including sales & payroll taxes, to make it more progressive
  • Constrain Wall Street's gambling behavior
  • Increase the minimum wage and earned income tax credit to help move people out of poverty

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