Fed chief warns of widening income gap
The Miami Herald

February 26, 2007 - 12:34AM


Fed Chairman Ben Bernanke’s recent warning about the pernicious effects of income inequality should strike a chord with every resident of South Florida, where the rich/poor gap becomes more evident by the day. While soaring new skyscrapers with million-dollar condos dramatically transform the skyline, workers struggle to find a decent place to live. No housing, no workers. No workers ... you get the picture.

The growth in income inequality, Bernanke said, is a political problem because it undermines the functioning of the economy. He is right, as the housing deficit in South Florida illustrates. But it also is an obstacle to achieving other desireable goals. Thus, it requires a political solution. Unfortunately, neither President Bush nor the Democratic-controlled Congress seems to have a plan to combat income inequality.

Bernanke’s figures offer a stark portrait of wealth distribution. In 1979, the wealthiest fifth of American households received 42 percent of after-tax income. In 2004, that figure rose to 50 percent, while the share of the bottom fifth dropped to 5 percent. By 2004, the top 1 percent of households received 14 percent of the nation’s after-tax income.
As this continues, “the public might become less willing to accept the dynamism that is so essential to economic progress,” Bernanke added.

What that means in practical terms is that the kinds of policies the U.S. economy needs in order to compete in a global marketplace will find dwindling support unless the benefits are shared on a more-equal basis. This is no surprise. Workers who find it harder than ever to make ends meet are hardly likely to support free-trade policies that they blame for lost jobs in the United States.

In similar fashion, some of the rising anger over immigration can be attributed to workers who blame immigrants for keeping wages low and for taking their jobs. In fact, the immigrant work force keeps the economy going, but it isn’t fair to ask workers who feel the American Dream is no longer within their reach to extend a friendly welcome to potential job competitors.
Beyond these issues, income equality is a problem in a larger sense. The well-being of our democracy is inextricably linked to the vitality of the middle class. As society becomes divided into opposing camps of haves and have-nots, the political system inevitably becomes more rancorous and inflexible.

Bernanke outlined a number of suggested improvements. They include more investment in education and a strengthening of health and pension benefits for those who “slip too far down the economic ladder.”

We agree. Congress, are you listening?
— The Miami Herald

http://www.themonitor.com/onset?db=moni ... ticle.html