Tags: Malpass | government | inequality | big

Former Reagan Adviser David Malpass: Big Government Makes Income Inequality Worse

By Dan Weil   |   Friday, 17 Jan 2014 09:26 AM

While progressives favor a bigger government to solve the income inequality problem, that would just add to it, says David Malpass, president of Encima Global research firm and former adviser to Ronald Reagan.

"Washington's increased size and power has concentrated income and wealth in fewer hands," he writes in The Wall Street Journal.

"Making government bigger will exacerbate this problem. It is already too big, intrusive and expensive to allow a robust economy that benefits everyone," wrote Malpass, deputy assistant Treasury secretary in the Reagan administration and deputy assistant secretary of state in the George H.W. Bush administration.

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Malpass says moves by the government to expand its control of the economy over the past few years have helped the rich and hurt the poor.

He cites the federal government's "takeover" of the mortgage industry and the Federal Reserve's decisions to keep short-term interest rates near zero and buy more than $3 trillion of bonds as examples.

"Both of these expansions channel credit to the government and the well-connected at the expense of savers and new businesses," writes Malpass.

Government expansion has been a boon to the financial industry, he notes. "Wall Street's upper crust is the epicenter for financing the contractors, lobbyists and lawyers that help the government spend money."

Nonetheless, Jim O'Neill, former chairman of Goldman Sachs Asset Management, believes governments are ready to act against income inequality.

"I wonder if we could be in the very early stages of a redistribution of wealth from capital back to mass income through government policies, whether it be from taxes or things being done to boost minimum wages," he tells CNBC.

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