Princeton's James: Central Banks Creating 'New Inequality' Among Rich and Poor Worldwide

Wednesday, 08 Jan 2014 07:34 AM

By John Morgan

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The response of governments to the global financial crisis has been fueling income and wealth inequality not only in the United States, but worldwide, according to Harold James, a Princeton University history professor.

In an opinion piece for Project Syndicate titled "The New Inequality," James said the official response to the current economic doldrums has produced a weak and fragile global recovery.

He noted the current economic upswing is reminiscent of the 1930s, when governments took bold steps in the teeth of the Great Depression — except for at least one major difference.

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"Many countries responded to the Great Depression by adopting policies aimed at reducing disparities in wealth and income. As a result, by the middle of the twentieth century, the extreme social and economic inequality that had characterized industrialized countries seemed to be disappearing."

However, this time around, James asserted, governments are a culprit in continued economic disparity.

"Since 2008, measured inequality, which was rising even before the financial crisis, has surged, owing largely to the very measures that are so often lauded for preventing another Great Depression."

James said non-conventional monetary policies have fueled an asset boom in stocks and real estate, while the middle classes are squeezed by near-zero interest rates and lower-income families are beset by competition from even lower labor costs elsewhere.

According to James, capitalist competition erodes monopolies, but "public policy risks creating entrenched privilege."

"Today, with both expansionary monetary policy and increased state spending prompting a powerful backlash from the excluded and the underprivileged, steps taken in the name of avoiding another Great Depression may end up exacerbating social polarization."

A recent Credit Suisse study showed the United States has the most uneven distribution of wealth of any developed nation, The Huffington Post reported.

In the United States, 75.4 percent of all wealth is owned by the richest 10 percent of the people, the study revealed, while in most other developed nations, including those in Western Europe, that top-line wealth figure is usually somewhere in the 50 and 60 percents.

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