Income Inequality Is Main Drag on Stagnant Economy -- and Economic Policy

Paul Krugman points to the key problem with income inequality, and it's not just that it crippled the middle class as it dealt with stagnant wages in the 2000s through excessive borrowing as Americans tried to maintain a  lifestyle they thought was their birthright. No, it's more insidious than that:

In the years before the crisis, there was a remarkable bipartisan consensus in Washington in favor of financial deregulation — a consensus justified by neither theory nor history. When crisis struck, there was a rush to rescue the banks. But as soon as that was done, a new consensus emerged, one that involved turning away from job creation and focusing on the alleged threat from budget deficits.

What do the pre- and postcrisis consensuses have in common? Both were economically destructive: Deregulation helped make the crisis possible, and the premature turn to fiscal austerity has done more than anything else to hobble recovery. Both consensuses, however, corresponded to the interests and prejudices of an economic elite whose political influence had surged along with its wealth.

That political influence of the wealthy is hard to counter.

Some point to Barack Obama's recent speech declaring income inequality "the defining challenge of our age" as a serious tack leftward by the president. As always, that remains to be seen. But if we as a country want to make true progress as a democratic society -- some say it's already too late -- then we must roll back the tremendous gains by the ridiculously wealthy at the expense of the buying power of what used to be the engine of our economy: our formerly powerful middle class.

Income inequality is indeed a defining challenge of our age, but it's not the defining challenge. That is women's rights, and that includes a global perspective. But for our own national interests, income inequality is a overwhelming negative force, and one to be reckoned with but soon.