On Tuesday, a draft statement from the Group of 20 finance officials warned that growing income inequality could harm economic growth, the first time the group has voiced concern over the issue.
“In some countries, potential growth has declined, demand continues to be weak, the outlook for jobs is still bleak and income inequality is rising,” it reads. The officials write later in the draft, “We will also strive to ensure that growth is inclusive, including through policies that address income inequality.” According to Bloomberg News, the group has never explicitly mentioned it in a communiqué before.
According to the Organization for Economic Cooperation and Development, the income gap between rich and poor in most developed countries is the biggest in three decades, with the wealthiest 10 percent making 9.5 times more than the bottom 10 percent. And a recent report from Oxfam forecast that the top 1 percent of the world’s earners would own more wealth than the bottom 99 percent by next year. Its share of wealth has already increased from 44 percent in 2009 to 48 percent last year.
Here in the United States, income inequality has been growing for decades, but it’s gotten even worse since the financial crisis. Between 2009 and 2012, the top 1 percent of earners captured all of the income gains while average income actually fell for everyone else. That continues a recent trend in which the richest 10 percent capture increasingly larger shares of income growth during times of economic expansion.
The G-20 isn’t the only group concerned about what these trends mean for the economy. Economists at the International Monetary Fund released a paper arguing that higher inequality is correlated with lower and less long-lasting growth, while taking steps to redistribute income gains won’t hurt the economy. Federal Reserve Chair Janet Yellen has warned that income inequality is a “very serious problem.” The CEO of one of the world’s largest banks has called it “very destabilizing.” A majority of large American companies have warned investors that falling incomes for most consumers could hurt their businesses.
The evidence seems clear that income inequality does risk harming economic growth if left unchecked. It also pushes Americans into more debt, reduces economic mobility, makes us less healthy and safe, and undermines democracy.