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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Forget Adderall. Traders now pop chia seeds to stay focused and energized
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
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Inequality is not just a problem for the have-nots. Barry Ritholtz, chief executive officer of the investment research firm Fusion IQ, says millions of potential investors may conclude, as they did after the Great Depression, that the market is a rigged game for insiders. Such seismic shifts in popular sentiment can have lasting effects. The Dow Jones industrial average didn’t regain its September 1929 peak of 355.95 until 1954. “You’re going to lose a generation of investors,” says Ritholtz. “And that’s how you end up with a 25-year bear market. That’s the risk if people start to think there is no economic justice.”
During the 1920s and the most recent decade the rich enjoyed large income gains, while politicians encouraged the poor and middle class to use credit to make up for flat-lining wage income, according to Rajan’s 2010 book, Fault Lines. Household debt nearly doubled in both periods, setting the stage for the Great Depression and the latest financial crisis, says a December 2010 paper by economists Michael Kumhof and Romain Rancière of the IMF. That increasing debt burden exposed the economy to widespread defaults when the financial shocks of 1929 and 2008 hit. “If nothing is done about income inequality, there may be recurring crises,” says Kumhof. “Leverage has not significantly improved. In terms of the danger of another crisis, we’re right back where we started.”
The bottom line: With $650 billion in income shifted to the top 5,934 households, the result could be shorter recoveries and gun-shy investors.
Lynch is a reporter for Bloomberg News.
