Did Increased Income Disparity Help Cause the Depression?

Yves Smith ponders whether Did Increased Income Disparity Help Cause the Depression?:

I've been meaning to discuss how increased income disparity is bad for economic growth, because in the end you wind up with insufficient labor income to fund consumption (note that America's high consumption rate has been achieved by lowering its already low savings rate to zero) and too much capital chasing too few investment opportunities (even a sound bet will produce a bad return if you pay too much for it).

It turns out I was beaten to the punch by nearly 50 years, as Robert Reich tells us in his latest post, invoking former Fed chairman Marriner Eccles . Insufficient consumption is one theory of the roots of the Depression (the monetarist version has gained ascendance), but Eccles links the consumption shortfall directly to a shift in wealth towards the top. And some of the other patterns of the Twenties, such as debt-fueled growth, are worryingly familiar.

The capitalists forget that people need to earn money before they spend it (unless some shyster offers them cheap loans). When there is no money, there is no consumption, there is no economic activity, no matter how cheap the goods are.

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Ben Stein is Exxon Mobil

Naked Capitalism contends that Ben Stein is Exxon Mobil when Ben Stein tries to defend Exxon Mobil against an attack by Barak Obama:

No, Stein isn't willing to consider that high profits by Exxon Mobil in an essential product like oil represent a transfer from the have-nots to the haves.

Cut Stein's argument to its core, and it's blatant free market run rampant: we shouldn't interfere with the God-given right of any company to earn a profit because it will hurt the investors. But Stein goes further and claims that the interests of investors are identical with those of the US public. Was he asleep when they talked about class warfare in school?

In fact, a September 2007 Pew Research Center study found that the US population increasingly sees itself divided along class lines. There was an even split among respondents as to whether they agreed or disagreed with the notion that the country was split along economic lines, while in 1988, 71% rejected it. Similarly, only 45% today consider themselves to be among the 'haves.'

Emphasis in original

Interesting.

Unfortunately, recognition that classes exist does not usually extend to any deeper analysis of their origins. The deeply ingrained anti-communism of the US public would prevent any counternance of a Marxist analysis.

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