Chrystia Freeland on How Wealth Inequality Affects the Economy

Stop me if you've heard this one: The top 1% of Americans controls 40% of the wealth.

It's true. But that might not be the most shocking number about wealth inequality in the United States.

I recently sat down with Chrystia Freeland, editor of Thomson Reuters, for a wide-ranging interview on the state of the economy. We got to talking about the growing level of wealth inequality and, importantly, why it seems to be gaining steam and how it affects the economy.

She had some fascinating perspectives. Not only has technology flattened the world and brought billions of new workers into the competitive labor market -- think about how Google and Facebook have connected everyone -- but a decline in taxes among high-income workers, a decline in labor unions, and a cultural shift that promotes CEOs making enormous pay packages have all played a role in the growing disparity between the middle class and the top of the pyramid. Have a look:

What do you think? Share your thoughts in the comment section below.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (12)

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  • Report this Comment On February 01, 2012, at 2:56 PM, mrbillCZ wrote:

    Morgan,

    Thanks for sharing. I agree with majority of points...I pointed out to colleagues however, that if we collected the $133 Billion still owed the American taxpayers, that's about 332,500 teacher salaries for an entire year---for TEN years. Thus, while I believe her points about the top .01%, and the CEO salaries being eggregious, it cannot be a basis for class warfare when no one is minding/overseeing the dollars that are being spent TODAY.

    I try not to spend too much time in mainstream media, but CBS had some valid interviews with both top CEOs who aren't hiring, and small business leaders. Their comments: the indeciveness in Washington is a main force for stagnation of current economic movement.

    Yes, I know, this is pandering to politics, but it has real-life ramifications for payroll companies who don't know what tax is/is not coming down the pipeline in the coming months.

    Bottom line: we need to find a way to end the polarization and get true oversight on monies spent currently. And we need those in power not asleep at the wheel--on both sides.

  • Report this Comment On February 01, 2012, at 2:56 PM, mrbillCZ wrote:

    Sorry...the 133B is the TARP monies still owed.

  • Report this Comment On February 01, 2012, at 3:41 PM, DJDynamicNC wrote:

    --> "Yes, I know, this is pandering to politics, but it has real-life ramifications for payroll companies who don't know what tax is/is not coming down the pipeline in the coming months." <--

    Any company that requires certainty to stay in business is not going to stay in business very long. Tax policy might change in a few months. Do you know what else might change in a few months?

    EVERYTHING.

    Technology, a new competitor, a market crash, commodity shortage, employee resignation, you name it, it could be wildly different a month from now. If I really can't figure out how to respond to possible changes in tax policy that are going to be announced on TV, debated for months, and then either accepted or declined by a highly publicized vote in Congress and then in most cases phased in over time expressly to give businesses time to adapt, then I honestly have no business being involved in commerce.

    "Their comments: the indeciveness in Washington is a main force for stagnation of current economic movement. "

    Look, I own a small business. We're doing well despite the economy and that means we've hired a couple additional employees to assist with promoting our events. The ongoing debate in Washington had precisely zero impact on my decision. I needed help to get the job done, so I took on help. Demand drives my decision. Taxes are just something I pay as the price of living in a society that can support businesses like mine, and I pay them whatever level they're set at. If taxes on my business go up, that doesn't directly impact the demand my business faces. To meet that demand I still need employees. I am most DEFINITELY not going to put off hiring needed help because somebody might someday change the tax code in some as yet undetermined way. That's ludicrous. I can't believe anybody actually believes that.

  • Report this Comment On February 01, 2012, at 9:20 PM, Acorn17 wrote:

    Excellent interview. As much as we hate to think about setting policies that redistribute or re-allocate wealth, the effects of not doing so are clear -- As long as upward mobility for the overwhelming majority flatlines, it really hurts innovation and society as a whole is poorer for it. We had much more 'socialist' policies in the 1st half of the 20th century and look at the innovation (car, airplane, atomic energy to name a few) and those policies were in reaction to the guilded age of the late 1800's when our lawmakers and society had the sense to see that we were headed for a sort of corporate and political feaudalism. By rolling all that back that is the risk I see today.

    I have been living in a 3rd world SE Asian nation for the past few years that is rapidly industrializing and it is very much like what I read about the 'guilded age' -- Rampant corruption plays a role in this but basically you have a situation where workers work for nothing (even the educated) and those who control large businesses and are in the government drive Bentleys and Roll's Royces -- this in a country where the average income is $1,500 per year! It is modern day feaudalism with no upward mobility and it kills morale and incentivises corruption as a means to improve. Now, the US if FAR from this now -- VERY FAR -- but why continue policies that move us even slightly back to the 1880s when a few people basically controlled the wealth of our country through oil, steel, railroads, etc. It was very bad then and that's why we busted up all the monopolies -- and look where it took us!

    What we do now as a nation will affect generations and if we can work to keep our nation incentivising the right kind of things we will always lead the world economically. The wealth gap in China (not where I live but I have lived there before) is so enormous now that it will have ramifications for decades and they aren't good for their society or economic growth. Why should we continue to become more like that?

    We have a chance to do something about it and reforming taxes on the wealthiest slice of the country, while seemingly 'un-American' for many is quite American actually. You just have to look back about 60+ years to see it to the time of our greatest economic ascent.

    Just my 2 cents.

  • Report this Comment On February 02, 2012, at 3:06 AM, MichaelDSimms wrote:

    Life isn't fair? Shocking.

  • Report this Comment On February 02, 2012, at 6:03 AM, scavanna wrote:

    Freedom of opportunity is a much more effective economic policy then "cradle to grave" entitlements. The most effective government is one that is a referee for the economy not a manager of the economy Look at Europe and beware of societies that try to give everyone an equal "slice of the pie"!

  • Report this Comment On February 02, 2012, at 11:51 AM, mrbillCZ wrote:

    All...fair enough on comments, as I was a bus. owner as well, and wanted to spice it up to see some feedback. :-) doesn't mean I believe all of them as a former CI analyst.

    Are there enough incentives for the entrepreneurial crowd? Methinks not, but they will find a way regardless.

  • Report this Comment On February 02, 2012, at 12:31 PM, DJDynamicNC wrote:

    @Michael - no, life isn't fair, but we as a society have accepted that we should attempt to make it somewhat more fair than it would otherwise be - that's why we have laws.

    @Scavanna - Agreed completely. Freedom of opportunity is very important. That's why I think those who are already rich (who have had ample opportunity) must be required to support the provision of opportunity to those who have greatly reduced opportunities. I'm glad you agree!

    @mrbillCZ - I think the biggest incentive the entrepreneurial crowd could get is socialized health insurance. How many would-be entrepreneurs are trapped in their corporate jobs because they can't risk being without health insurance? I run my business in Canada because that's where the market I'm interested in is more accessible, but let me tell you, I couldn't afford to give myself or my employees health coverage in the States. It is a HUGE burden off my back to not have to worry about it.

  • Report this Comment On February 02, 2012, at 12:33 PM, TMFHousel wrote:

    <<Look at Europe and beware of societies that try to give everyone an equal "slice of the pie"!>>

    Most of Europe actually has higher social mobility than the United States.

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