Tuesday, August 5, 2014

AP — S&P: Wealth gap is slowing US economic growth

Warren Mosler: "It’s always about unspent income."

The rich save more, and unless they spend all they make, then not all goods capable of being produced at full employment will be sold if another sector  (government or external) does not offset the difference.

Private sector balance + government balance + external balance = zero (by accounting identity)

So either the non-rich borrow more to spend, or net exports offset, or the government increases its net spending (fiscal deficit), or some combination thereof, or the economy will underperform and there will be a death of jobs for those willing and able to work.

Failing to understand causality and mistaking correlation for causation, S&P economists think that what is required is to give everyone another year of education, since more education is correlated with higher earnings. Daft.

The to be fair and balanced they add,
Harvard University economist Greg Mankiw wrote in a 2013 paper that "the evidence is that most of the very wealthy get that way by making substantial economic contributions, not by gaming the system."
I'd call this conventional "analysis" both standard and poor.

But at least they agree with Thomas Picketty that inequality is a problem — while rejecting his solution to increase progressive taxation on income and wealth. Hey, it's S&P. What do you expect them to say about taxing the rich.

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