Wisdom on inequality from the belly of the beast

This, from Bloomberg today:


Federal Reserve Governor Sarah Bloom Raskin told the New America Foundation that economic inequality, caused by stagnating incomes for most Americans and rapid growth in wealth for the richest 1 percent, is hindering the U.S. economic recovery. She described income inequality as "destabilizing," because it "undermines the ability of the economy to grow sustainably and efficiently." “Finding ways to help more Americans safely grow their incomes and net worth in real terms arguably diminishes the destructive influence of income inequality by giving everyone a more secure footing in the economy and the same kind of flexibility and choice available to the more affluent,” Raskin said.


Raskin is hardly the first mainstream economist to see a connection between inequality and today's economic stagnation (Raghuram Rajan got there first) but she is the first one in a policy-making position that I've seen. Wage stagnation, income inequality and economic insecurity have of course dominated the lives of most American families for decades now, long before the Great Recession.  Indeed, one could argue (as Rajan and Robert Reich have) that the inequality may have played a major role in causing the economic downturn.  There is little doubt, however, that it continues to hamper our ability to get out of it.


Unfortunately, the best responses to the effects of inequality and income stagnation on economic demand -- Keynesian fiscal policy, a strengthened safety net, a revived labor movement, and so forth -- are unavailable in the present political environment.  The Fed can do little on its own, though one hopes that Raskin's clarion call is heard over on Capitol Hill...and in the White House, as the days tick down toward debt ceiling day.