Tags: Blinder | inequality | supply | side

Blinder: Rising Income Inequality Hurts Supply Side of Economy Too

By Dan Weil   |   Friday, 15 Aug 2014 10:39 AM

Most of the focus on income inequality, in terms of how it damages the economy, has focused on the demand side: people without money can't spend.

But, "in thinking about the effects of inequality on growth, we should look more at the supply side than the demand side," Princeton economist Alan Blinder writes in The Wall Street Journal.

"The best supply-side policies may be those aimed at reducing income inequality."

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For example, children who grew up poor receive substandard education in their public schools and probably don't make it to college, the former vice chairman of the Federal Reserve explains.

Children who don't get enough to eat are deprived both physically and mentally. And children who don't receive adequate healthcare obviously suffer.

"Inequalities have grown so extreme that we have such phenomena in America," Blinder notes. That justifies programs such as Medicaid and Obamacare, he adds.

"Still, the U.S. is not doing nearly enough. Inequality is rising, and so is poverty — which takes a toll on the productivity of the American workforce. Anti-inequality policies can be pro-growth."

Meanwhile, financial author Erik Sherman writes in an article Forbes that while the ultra-wealthy are culpable for much of the rise in income inequality, "it is hypocritical for most people wringing their hands to point at the rich as the sole source of wage inequality."

The middle class "has a big role in the problem," he says. For example, by purchasing the cheapest goods and services at the lowest prices possible, the middle class helps put a ceiling on wages because to keep prices down, a business must keep expenses down, "and labor is one of the easiest areas in which to do this."

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