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Five places to look for the next financial crisis (with graphs!).

By Ezra Klein  |  July 16, 2010; 11:27 AM ET
Categories:  Articles  
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Next: The economic, political, and financial problems behind the financial crisis


Your Post article is very good. Just this morning on CNBC the hosts and a guest were debating why business is hoarding cash. Of course they fear another liquidity squeeze, but the obvious answer is that business won't hire or spend until they believe there will be an upturn in demand. Then one mentioned household debt, saying that people can't spend because they are busy getting out of debt. The problem, obviously, is that consumers have too little money to generate demand. And why is that?

Quoting your piece, "This is where I come to income inequality," says Raghuram Rajan, an economist at the University of Chicago. "A large part of the population saw relatively stagnant incomes over the '80s and '90s. Credit was so welcome because it kept people who were falling behind reasonably happy. You were keeping up, even if your income wasn't."

Yes, most people have too little money, and just look at the graph in your piece showing the increase in financial sector profit to see why.

The Libertarians and conservatives here are always complaining about "the government taking your money." But what about the banks "taking your money" through outrageous fees and charges and usurious interest rates? What about business not giving you a fair share to begin with through low wages, loss of benefits and shifting to temps and independent contractors and just firing people? That's all god-given? These things, not taxes (except for the payroll tax) are what have killed demand on the part of ordinary consumers.

That's why we need (shudder) more policies that get money to less well off people and let them keep a greater share of what their labor generates. This is the only way we can really grow the economy. This is why in the Clinton years the economy worked and under Bush it collapsed.

Just remember that the median AGI for all income tax filers in 2007 was $32,879. The top 10% of filers reported incomes over $113,018; the top 1% incomes over $410,000. The top 10% had almost half of the AGI and the bottom 50% had 12.26%, and that's leaving out the people who don't make enough to file a tax return.

Ain't many people here in the top 1%, I'd venture to guess. So whose interests, exactly, are we looking out for?

Posted by: Mimikatz | July 16, 2010 12:37 PM | Report abuse

@Ezra: Great article. Point taken about relying on regulators, especially when there is a revolving door between making multimillion dollar fortunes in the private sector and regulating the industry you just left or are about to join.

I think the key point is the money in politics influencing legislation.

To paraphrase my late father (an immigrant who arrived from a war zone with the clothes on his back and about $200), "Its not that congresscritters are for sale, its that they are sooo cheap relative to the amount of money the plutocrats have." Now with citizens united, that situation will only get worse.

Posted by: srw3 | July 16, 2010 1:26 PM | Report abuse

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