Suddenly Wall Street Realizes that Income is Bad for Wall Street

It seems pretty elemental to economic projections that having wealth concentrated in a tiny percentage of the population while everyone else struggles to survive is not going to stimulate spending on consumer goods and other expenditures that keep corporate America in business.  Yet all too belatedly Wall Street seems to be catching on to the reality that the creation of a new Gilded Age as envisioned by the GOP is not going to bode well for the captains of industry or Wall Street itself.  While the Koch brothers continue to court cretins in the GOP base like the authors of the signs in the image above, others seem to be having second thoughts.  Here are highlights from a piece in Mother Jones:

There's a lot of evidence that record-high income inequality has gutted the United States' post-recession recovery. But on Tuesday, the argument was made by an unexpected source: Standard & Poor's (S&P), a Wall Street firm providing ratings and analysis on stocks and bonds, issued a report pointing out economic disparity's role in "dampening US economic growth."

Over the next decade, S&P forecasts that the economy will expand at just a 2.5 percent annual rate, a downgrade from the 2.8 percent growth it predicted just five years ago. One explanation: "At extreme levels, income inequality can harm sustained economic growth over long periods. The US is approaching that threshold."

The gap between the richest and poorest Americans has been skyrocketing for decades, with no end in sight. How exactly does this widening wealth gap affect the economy? "Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring," the report explains. It leads extremely wealthy households to save more and consume less, while lower-income households must borrow to sustain consumption. "When these imbalances can no longer be sustained, we see a boom/bust cycle such as the one that culminated in the Great Recession."

S&P suggests focusing on education to increase national productivity. According to the report, one additional year of education in the American workforce could increase GDP by $525 billion—about a 2.4 percent boost—over the next five years.

As S&P ominously concludes the report, "A lifeboat carrying a few, surrounded by many treading water, risks capsizing."