Finance and Inequality

The latest Buttonwood column in ´Economist´dated March 26th, 2011 hits the nail on the head. It highlights the role of Finance and American monetary policy in fostering huge income inequality in the country: 

One factor that should perhaps get more emphasis is the role of the financial sector. Central banks have repeatedly cut or held down interest rates over the past 25 years in an attempt to boost bank profits and prop up asset prices. With this subsidy in place, is it surprising that earnings in finance have outpaced wages for other technologically skilled jobs?

Attempts to remove that subsidy are met by threats from international banks to move elsewhere. This is a little reminiscent of the protection rackets run by the gangsters in Mario Puzo’s “The Godfather”. It is as if the finance sector is saying: “Nice economy you got there. Shame if anything should happen to it.”

Backing him up is Neil Barofsky, the special inspector-general of the Troubled Asset Relief Programme (TARP) in the US.  His column (ht: Dr. Vidyasagar) is both simple and effective. Read it here.

Originally published at The Gold Standard and reproduced here with permission.