Sunday, August 22, 2010

Income Inequality and Financial Crises

An article from the New York Times: "Income Inequality and Financial Crises".

New technologies, the rise of speculative capital, the polarization of wealth ("income inequality" sounds a bit gentler) are all correlative, and arise together in the hothouse of capitalism. And speculative capital can have a small stabilizing effect, or a major destabilizing one if the sloshing of speculation gets so intense as to spill over into a systemic collapse.

The NYT article referenced above is interesting in that it observes the correlation in the first place, and goes the liberal next step: Poverty isn't just bad for poor people, having lots of poor people around is bad for rich people at a big, system-wide level.

The article is a bit skimpy on how such a causal relationship works.

(The article refers to the mortgage / housing crisis, and here is how the polarization of wealth contributes to financial crises: companies take on more risk, to maintain profitability, by reaching into increasingly impoverished markets, helped along by new technologies that support spreading risk via electronic trading markets. The underlying poverty is unable to sustain the structure, and then it comes tumbling down.)


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