Alan Greenspan, the architect of the meltdown in financial markets, says capitalism isn't to blame for all this income inequality. No way, he says, it's all about globalisation.
Writing in the Financial Times, Greenspan says: "The often-assailed greed and avarice associated with capitalism are in fact characteristics of human nature, not of market capitalism, and affect all economic regimes. The legitimate concern of increasing inequality of incomes reflects globalisation and innovation, not capitalism."
Most investors don't agree. Bloomberg reports that international investors say capitalism is in crisis, with almost one in three backing radical changes to the system and claiming that the big problem is the income inequality. To put it bluntly, there can be no economic growth if all the wealth is concentrated in the hands of the very rich because it's the middle class that drives demand. " 'Capitalism is in crisis because there is a huge and growing disparity in income/wealth distribution in Western economies, and an equally divisive generational disparity,' poll participant Michael Derks, chief strategist for FXPro Financial Services broker in London, said in an e-mail. 'It requires government intervention on an enormous scale, because an economy cannot survive if it does not invest in the younger generation,' Derks said. More than 70 percent of those polled believe the system is in trouble, with 32 percent saying it needs a "radical reworking of the rules and regulations." The other 39 percent think the turbulence will ebb on its own, according to the quarterly poll conducted Jan. 23-24 of 1,209 investors, analysts and traders who are Bloomberg subscribers. Fewer than one in four say free enterprise is working as it should."
US income inequality now stands at its highest rate since the Great Depression. An economy that relies on consumer spending can't function when earners cluster at the poles with poor people buying very little, and wealthy people spending only a small fraction of their income on goods and services. America's middle class – the people who fuel the retail economy – has been stagnant for three decades. Their income has barely risen.
Greenspan is wrong. Income inequality is the result of capitalism that has gone unchecked. It's what happens when you let the markets rip without any regulation.
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