Beruflich Dokumente
Kultur Dokumente
No. 1
2011 01 31
To the Point (continued)
January 31, 2011
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However, during a seminar at the American Economic Association in
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Denver in early January, Raghuram Rajan, Economics Professor at the
0.15 University of Chicago, argued (as he did in his book Fault Lines) that
0.10 increased inequality also helped creating the financial crisis in the US.
0.05 He contends that, as people were falling behind, pressure increased to
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keep them happy with housing credit. As house prices went up, people
China USA India UK Japan Germany Sweden
could feel they had a stake in the future and a participation in growth.
Rajan views this as being an implicit or explicit policy failure, and that
the US – having a less-developed welfare system – had to use
aggressive monetary policy in response to recessions to compensate for
inadequate safety nets.
Regardless of taking a leftist or a rightist political perspective, the
economic policy towards the lower and middle class was “let them eat
credit.” Rajan does not pretend that the causality between the credit
policy towards the households and the financial crisis is
straightforward, but he concludes that there is “enough smoke.” The
right economic policy would in his view be to support more strongly
the reform of the educational system in order to give better access to
education and reduce income inequality, but he does not seem to be
optimistic about the prospects for this outturn.
As the policy of making growth dependent on loan-driven households
no longer seem to be a viable solution, the question is whether
developed nations will adhere to more fundamental policy solutions,
such as reforming education and improving the functioning of the labor
markets. Without reform-oriented growth policies, the lower and
middle classes may be especially vulnerable.
The “haves” will always create more wealth out of the present wealth,
as investing in growth-oriented emerging markets is a source of yield,
albeit perhaps not without interruptions in the years to come. However,
slow growth, as well as deleveraging in both the public and private
sectors in the advanced countries, will hurt welfare systems and
ultimately hurt income prospects for those with lower incomes. The
economic and financial alienation will most likely increase in the
coming years.
The question is whether the various groups responsible for political,
economic, and social developments will be responsive to the increased
anger around the world. Bonuses are again becoming the natural
outcome for many leaders in industrial and service companies,
including banks. In many countries, wage negotiations may become
more complicated as wage agreements for the richest are reaching new,
excessive highs.
It is reasonable to expect that income inequality in emerging markets
will narrow because growth continues to be high, allowing the poorer
people to catch up; however, this inequality will worsen in developed
countries as the deleveraging will dampen growth.
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To the Point (continued)
January 31, 2011