The Inequality of the Economic System

Inequality, among others, causes a lot of problems for the economy and many people are trying to fix this and also prevent it, In the video, “It’s Time to Get Radical on Inequality”, Joseph Stiglitz talks about the idea economists had for a long time about making the “economic pie” bigger and then letting the others decide on how to divide it Stiglitz believes that economists share some of the blame for the increases of inequality. Economists thought that if they can get the pie bigger, and the GDP going well, it would work out for most Americans which Stiglitz states isn’t true, Also, financialization is one of the causes of wealth inequality.

It is known as the process of the financial institutions, financial markets, etc, increase in size and influence. Financialization seems to be most developed in the Us economy and is also an important factor in the growth of income inequality, it is believed that financialization will put the economy at risk of debt deflation which is a situation when a form of debt decreases its value.

In the essay “Financialization: What It Is and Why It Matters“ by Thomas I, Palley, household debt-income ratios has been rapidly rising in the last two decades. It also explains the system’s growth and how it can be easily broken. The risk is when this happens the economy could be too weak to debt-deflation and prolonged recession; when financial markets get too big, it is believed that the economy will get like this, Inequality harms economic growth and threatens society.

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For example, since consumer spending is a major necessity for the economy, if their spending were cut short, then businesses won‘t have any motivation or reason to expand or hire additional workers. It is said that the rich spend way less than the middle class, so if the middle class and even the poor’s spending is cut short, consumer spending and demand will decrease and weaken.

High inequality leads to lower levels of consumer spending and consumer spending makes up more than half of the US. economy. When the middle class is forced to borrow in order to maintain its standard of living, consumer demand will even more decrease when debt suddenly arrives. Usually when there is an increase in borrowing, it will create a crash like for example, the Great Crash of 1929 and the near-meltdown of 2008. Families are also affected by income inequality; it looks like rising income inequality has contributed to rising disparities in family problems, Across the United States, there has been a rising connection between income and non-marriage, divorce, teen birth, out-of—wedlock birth, and single parenthood relationships Each of these relationships has a decreased or increased in low income. In these families, not only do the parent have to work and support themselves, they have to support their children or any other person they are taking care of or is in need.

In families with low income, saving money is extremely hard because they had to contribute to everything, put everything to the side and sometimes it feels like all of their hard-working money is gone Inequality also affects growth by undermining education opportunities for children from poor economic backgrounds, lowering social mobility and slow down skills development. Higher levels of income inequality may widen an inconsistency in education. In the United States, college costs have risen sharply in recent decades. Even with considerable funds available for financial aid, students from lower-income households may be forced to pay or borrow too much to attend college.

There many solutions to help change inequality but the whole point is to understand that the economy is a system of rules, In order to change the rules in ways, people need to come up with ways to make the economy better and work for everyone. To change inequality, we need an economy that works for everyone equal opportunity for all, Richard Reich mentions that we need to make sure that the banks won‘t be as large and powerful like how they are right now. So, for example, increasing affordable housing might be a good start. Making banking, saving, and other financial services fair and more accessible can make a big difference.