Galbraith: Addressing Inequality Means Addressing Instability

Levy Institute Senior Scholar James Galbraith was interviewed by the Washington Post‘s Brad Plumer about his new book Inequality and Instability:  A Study of the World Economy Just Before the Great Crisis.  Galbraith explains that the rises in inequality we’ve witnessed globally since the 1980s can be traced to changes in finance and the macroeconomy (“when something’s happening at the same time around the world, in different countries that are widely separated, that’s a macro issue”):

Between the end of World War II and 1980, economic growth in the United States is mostly an equalizing force, and job creation isn’t dependent on rising economic inequality. But after 1980, economic booms and rising inequality go hand in hand. So what’s going on? In 1980, we really went through a fundamental transformation. We stopped being a wage-led economy with a growing public sector that was providing new services. Programs like Medicare and Medicaid were major drivers of growth in the 1970s.

Instead, we became a credit-driven economy. What the evidence in the U.S. shows is that the rise in inequality is associated with credit booms, which are often periods of great prosperity. We had one in the late 1990s with information technology and one in the 2000s with housing, before everything fell apart. But this is also a sign of instability — the crash that follows is very ugly business. If we’re going to go forward with growth on a more sustainable basis, then controlling inequality and controlling instability are the same issue. One is an expression of the other.

Read the interview here.

The Real News Network also featured a three-part interview with Galbraith (videos assembled here).