Standard and Poor’s (S&P), a company recognized around the world as an international financial research and credit ratings company, said last week that the American economy would benefit from reduced inequality.

S&P critically examines economies and companies around the world, which influences investors’ priorities. A downgrade from the S&P can mean a difference of billions of dollars in investments.

Concerns about inequality have led S&P to reduce the long-term growth rate of the U.S. economy: “At extreme levels, income inequality can harm sustained economic growth over long periods. The U.S. is approaching that threshold. Standard & Poor's sees extreme income inequality as a drag on long-run economic growth. We've reduced our 10-year U.S. growth forecast to a 2.5% rate. We expected 2.8% five years ago.”

To address these concerns, the S&P recommended, “Some degree of rebalancing--along with spending in the areas of education, health care, and infrastructure, for example--could help bring under control an income gap that, at its current level, threatens the stability of an economy still struggling to recover.”

The S&P article listed the following factors as concerns for inequality and the U.S. economy:

• Failing to raise the minimum wage
• Increased income from capital gains and business income as a percentage of income
• Weakened government transfer programs
• Undereducated workforce (specifically the quality of high school education and availability of preschool)
• Tightened budgets and reduced spending (for everyone except the top five percent)
• Corporations focusing on increasing stock prices, not investing

The S&P’s record of recommendations and ratings in the past is certainly not without flaws, as Paul Krugman points out. However, the ratings agency has added its voice to a chorus suggesting the American economy is flirting with unhealthily high levels of inequality and must act to help struggling families and prevent further damage to the nation's economic health.

For Further Reading

"Flexibility" for Whom? Irregular Schedules, Other Practices Wreak Havoc on Workers, The Fine Print blog, Aug. 19, 2014

Unemployment Insurance: A 79-Year Old Promise to American Workers That Needs Renewing, The Fine Print blog, Aug. 14, 2014

Unemployment Benefits Keep Families in their Homes, The Fine Print blog, Aug. 8, 2014

Bill Would Eliminate Child Tax Credit for Many Low-Income Families in 2018, The Fine Print blog, Aug. 4, 2014