Will Inequality Cause the Next Financial Crisis?

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“If you were given an extra dollar of income, how much of that dollar would you use to buy stuff and how much would you save?”

Income Inequality Has Been Increasing for Decades

• In the late 1970s, the top 1% of income earners accounted for only 8.9% of the total income
• By 2015 the top 1%’s share of total income increased to over 22%
• Since that time, many workers wages have barely kept up with inflation

Source: Emmanuel Saez, UC Berkeley

How Increasing Income Inequality Impacts the Economy’

You might be asking how growing inequality could have potentially negative impacts on the economy.

Allow me to throw my economist hat on and do a quick review of what Gross Domestic Product (GDP) is.

GDP= C+I+G+(X-M)

where

C= Consumption

I= Investment

G= Government spending