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Barack Obama

How income inequality is hurting the economy

Wednesday, August 13, 2014 - 02:51

The widening wealth gap in America will hamper economic growth in the long-run by restraining consumer purchasing power, increasing household debt loads, and sowing the seeds of political instability, according to Standard & Poor's. Conway G. Gittens reports.

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The difference between "The Have A Lot" and "The Have Less" is growing to levels that can harm the U.S. economy, according to ratings agency Standard and Poor's. Income inequality is nothing new, but has skyrocketed in the years following the Great Recession as asset values grow on the top end and wages stagnate on the low to middle end. That's creating a challenge for the economy. Madeline Schnapp, director of economic research, at Property Radar: SOUNDBITE: MADELINE SCHNAPP, DIRECTOR OF ECONOMIC RESEARCH, PROPERTYRADAR (ENGLISH) SAYING: "We have what I call a Barista economy - a low-wage, service oriented economy and then an economy driven by people that have investible assets. They haven't been affected as much by this downturn, while the Barista economy has." Just how wide is the wealth gap? S&P points to 2011 statistics from the Organization for Economic Co-Operation and Development, which show the average income of the richest 10 percent of America is 14 times greater than the poorest 10 percent. According to another measure, that gap puts the U.S. right at the point where the economy is held back, according to S&P U.S. Chief Economist Beth Ann Bovino. SOUNDBITE: BETH ANN BOVINO, U.S. CHIEF ECONOMIST, STANDARD AND POOR'S (ENGLISH) SAYING: "Of course, the high-end bracket can spend. They have a lot of money to spend but they also can actually save more, while the lower income brackets don't have the money to spend, so unless they rely on debt they won't be able to get that money out there. So you would see that group, people, say the bottom 40 percent would be squeezed, not able to spend and when people can't consume and since the U.S. consumer makes up about 60 to 65 percent of GDP growth, they are squeezed out of the market and that certainly hurts growth." There are signs of strain coming from the consumer. July retail sales - the weakest since the start of the year. And retailers from Macy's in the middle, Kate Spade on the higher end and Wal-Mart on the lower end - all show price conscious consumers are ruling the day. S&P is lowering its 10-year economic growth targets but says there are still ways to turn things around, suggesting not to focus on bringing down high-income Americans, instead focus on bringing up the low to middle end. A useful tool for that goal: education. SOUNDBITE: BETH ANN BOVINO, U.S. CHIEF ECONOMIST, STANDARD AND POOR'S (ENGLISH) SAYING: "If we do encourage people to go to school, get the kind of schooling they need and of course those people, according to a number of surveys and indeed looking at the cold hard facts - somebody with a college degree usually makes twice as much as somebody with a high school degree or less and that's over the course of their lives." The problem of course is still money and the growing problem of student loans - S&P points out that's where the government can come in to level the playing field with new financial aid programs, without sacrificing growth by penalizing the wealthy.

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How income inequality is hurting the economy

Wednesday, August 13, 2014 - 02:51