The rich get richer…and demand languishes

In today's New York Times Steven Rattner reports on new data showing that 93 percent of the increase in U.S. personal income from 2009 to 2010 went to the top 1 percent of taxpayers, as the economy was just beginning to dig its way out of the financial crisis. This is not chicken feed; the increase in the economic pie that he is talking about is $288 billion. Just think what a stimulus it would have been to the economy if 93 percent of this income gain had gone instead to ordinary working families who would have spent most of the money on consumer goods and services, leading in turn to greater employment, further wage gains, and so on. And meanwhile the 1 percent, who were already having a hard time trying to figure out how to spend their money, wouldn't be pouring this windfall into already glutted investment markets, risking the inflating of new asset bubbles.

Meanwhile, Chairman Bernanke of the Federal Reserve is complaining about the sluggish growth of the economy. Unless economic growth picks up, he reminds us, it will be inadequate to reduce unemployment. Why is it so hard for economists to connect the dots? Why are our tax and wage policies so out of whack? How can the Fed be expected to provide so much stimulus through monetary policy, which in current circumstances must feel like pushing on a string?