Income Inequality and Financial Crises

A really interesting article from the New York Times which looks at the recent work of Professor David Moss, an economic policy historian at the Harvard Business School. He indicates that income disparities between rich and poor widened as government regulations eased and bank failures rose. He produces a great graphic on the subject

Income disparities before that crisis and before the recent one were the greatest in approximately the last 100 years.
- 1928, the top 10% of earners received 49.29% of total income.
- 1928, the top 1% of earners received 23.94% of total income.
- 2007, the top 10% of earners received 49.74% of total income.
- 2007, the top 1% of earners received 23.5% of total income.

The figures above are amazingly similar for the two years. Ultimately what reserachers want to know is if these huge gaps in income create perverse incentives that put the financial system at risk. If so, their findings could become an argument for tax and social policies aimed at closing the income gap and for greater regulation of Wall Street. Click here to read the whole article. The graph below shows the correlation between financial regulation and bank failures, and trends in income inequality.