Income gap the bane of US
US President Barack Obama has just committed himself and his administration to fighting the scourge of income inequality. Indeed, it is not a moment too soon to focus on this issue.
The United States' recovery has been incredibly unequal, with the incomes of the richest 1 percent growing robustly, while those of the bottom 99 percent are stagnant. For a long time, few economists - even those who worried about inequality - have deliberated this topic in the context of macroeconomic policy.
As it turns out, high and rising levels of inequality may well be a cause of increased macroeconomic instability. But the negative spiral doesn't end there; high inequality also contributes to a fraying of the political consensus, is associated with boom-bust credit cycles and may ultimately lead to a chronic weakness of economic demand.
