Income Disparity Blamed for Slow Growth

Warnings about the dangers of income inequality usually don't come from Wall Street. This week, they did. Credit: Mike LuckovichWarnings about the ramifications of income inequality usually don't come from Wall Street. This week, they did.

Standard & Poor's chief economist says growing income disparity is retarding overall growth in the U.S. economy and poses a future threat of even deeper boom/bust cycles. The concentration of wealth by a few has stifled spending and saving by the many. 

The remedy urged by S&P involves redoubled commitment to quality education. The rating agency's report says more schooling translates into higher earning capacity. If the average American worker logged one additional year of education, S&P estimated it would add $105 billion per year to overall national economic activity.

S&P discouraged use of tax policy to cure income inequality. It said higher taxes could remove incentives to work and convince employers to hire fewer workers.

When worker wages lag, the S&P report concluded, lower wage earners tend to curb spending or go deeper into debt when faced with emergencies such as medical expenses or the need for a replacement vehicle to get to work. 

The report by S&P confirms the income disparity is expanding. While the top 1 percent of U.S. wage earners raked in an average of $1.3 million in 2012, the bottom 90 percent have seen their incomes erode after adjusting for inflation for the past 13 years.

Without mentioning trickle-down economics, the S&P report dismissed the notion that a rising tide lifts all boats. "A lifeboat carrying a few, surrounded by many treading water, risks capsizing," the report said.

Given the partisan and ideological gridlock in Washington, DC, it is unlikely the S&P report will garner more than nominal attention in what amounts to a non-debate. Despite the unusual source of validation, congressional Republicans won't see any election-year value in acquiescing to Democratic economic policies designed to boost lower-wage workers. There is equally little enthusiasm to wade into federal education policy, other than to snipe at the Common Core concept advanced by the Obama administration.

All you can expect from the nation's Capitol is more finger-pointing on who to blame for a recovery that hasn't descended to all rungs of the economic ladder. The battle to boost educational achievement, which S&P says is essential to stronger economic growth, will be left to states and local school districts.