Did Rising Inequality Cause the Financial Crisis?

I can’t see any logical reason to connect these two variables, but lots of people seem to think they are connected.  So I thought I’d look at the evidence.  I found an OECD study that looks at income growth for the top 10% and the bottom 10%, between the mid-1980s and the late 2000s.  It seems reasonable to assume that if the income of the rich is growing much faster than the income of the poor, then inequality is increasing, and vice versa.  So rather than look at all countries, let’s focus on those where the difference is significant, say more than 1% per annum.  There are 8 countries where the rich did much better than the poor, headed by Sweden:

Country Top 10% Bottom 10% Gap
Sweden 2.4% 0.4% 2.0%
Britain 2.5% 0.9% 1.6%
Germany 1.6% 0.1% 1.5%
New Zealand 2.5% 1.1% 1.4%
USA 1.5% 0.1% 1.4%
Norway 2.7% 1.4% 1.3%
Finland 2.5% 1.2% 1.3%
Holland 1.6% 0.5% 1.1%

And there were four countries where income got much more equal:
Portugal 1.1% 3.6% (2.5%)
Greece 1.8% 3.4% (1.6%)
Spain 2.5% 3.9% (1.4%)
Ireland 2.5% 3.9% (1.4%)

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About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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