By 2007, America was about as unequal as it had been on the eve of the Great Depression – and sure enough, just after hitting this milestone, we plunged into the worst slump since the Depression. This probably wasn't a coincidence, although economists are still working on trying to understand the linkages between inequality and vulnerability to economic crisis. Here, however, we want to focus on a different question: Why has the response to the crisis been so inadequate?They then argue that extreme inequality has funneled so much money through the 1% to politicians, lobbyists, think tanks, the media and academia that the entire intellectual establishment has, in effect, been bought by the rich, and is unable to develop solutions to the economic crisis that challenge the entrenched positions and interests of their paymasters.
Their argument is compelling. However, when it comes to stating their conclusions Krugman and Wells remain agnostic regarding the causes of the crisis:
In summary, then, the role of rising inequality in creating the economic crisis of 2008 is debatable; it probably did play an important role, if nothing else than by encouraging the financial deregulation that set the stage for the crisis.The writings of Paul Krugman often exhibit extreme irritation and frustration. He seems to be saying: "Over and over again I have proposed reasonable, short-run Keynesian solutions to the crisis. Governments should pump spending into the economy now and worry about deficits and inflation later. I am frustrated. Why are my spending proposals not being adopted, when they are so obviously right and austerity is so obviously wrong?"
We at Inequality 2012 feel a similar frustration with the proponents of austerity. However, we go further. Another object of our frustration is Krugman himself. Why does he refuse to accept the role of inequality in causing the crisis, a role that other observers like Robert Reich have clearly identified?