The Limited Effects of Fiscal Stimulus

Writing in the New York Times, Robert Reich explains how a minor and temporary boost to workers' incomes is tempered by the long-term trend in income inequality.

The underlying problem has been building for decades. America's median hourly wage is barely higher than it was 35 years ago, adjusted for inflation. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. Most of what's been earned in America since then has gone to the richest 5 percent.

Yet the rich devote a smaller percentage of their earnings to buying things than the rest of us because, after all, they're rich. They already have most of what they want. Instead of buying, and thus stimulating the American economy, the rich are more likely to invest their earnings wherever around the world they can get the highest return.

The problem has been masked for years as middle- and lower-income Americans found ways to live beyond their paychecks. But now they have run out of ways.

Indeed. As economic gains from productivity growth accrue at the upper end of the income spread, the bottom two thirds of American households will experience dwindling consumption resources. And so the trend in inequality is not only troubling from an equity perspective, but it has deleterious consequences on the performance of the economy.

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