AMERICA - Economic Inequality, Part-2

"Americans Facing More Inequality, More Debt and Now More Trouble?" (Series Part-2) PBS Newshour 8/17/2011

(Series Part-1, Part-3, Part-4, Part-5, Part-6)

Excerpts from transcript

JEFFREY BROWN (Newshour): Now we continue our series on inequality in the United States.

A new report from The Annie E. Casey Foundation finds that the poverty rate among children has risen by 18 percent over the last decade. That means two million more children dropped below the poverty line, back to levels of the early 1990s.

NewsHour economics correspondent Paul Solman is looking at the widening wealth gap. Tonight, he explores possible connections between inequality and the financial crisis.

More excerpts

PAUL SOLMAN: Took our more debt because, he says, America is growing more unequal. Since the top one percent now commands more than one-third of all wealth, how's the bottom 99 percent supposed to keep up with the Joneses, if not the Kardashians? By borrowing.

FRANK LEVY, Massachusetts Institute of Technology: In the 1950s and 1960s, everybody's income was rising. Everybody had some claim on economic growth, so that people could buy a middle-class standard of living. If you go back to the '70s into the '80s, when things began to flatten out, people started dealing with that by putting a second earner into the labor force.

But that obviously has limits. And so, once that was pretty well exhausted, once you started getting into the '90s, then we're into the home equity loans and the credit card stuff and all the rest of that, trying to keep consumption growing like it had been before.
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DAVID KOTZ, University of Massachusetts, Amherst: If the economy's going to expand, while profits are going up very rapidly and wages are stagnating or falling, which has been the rule since 1980, then who's going to buy the increased output of the economy? It's possible only if households borrow to maintain their living standard.

That's why we have seen the huge growth in household debts in the economy. Millions of families unable to pay their bills from their declining income were forced to borrow against their home to keep the electric power on.
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PAUL SOLMAN: Professor Conrad blames the crash on the rich exploiting inequality by renting their money at fat interest rates to those trying to stay in the middle class, and not only by taking out a mortgage or a home equity loan.

CECILIA CONRAD, Pomona College: I would expand on that story a bit and probably have a slightly different take, because I would expand it to include not only homeownership, but when you look at credit card debt, if you look at the growth of the fringe banking sector, the sort of payday lenders, the growth in those, all of those were helping to fuel consumption. It's the modern version. Instead of, let them eat cake, it's let them have flat-screen TVs.