Inequality and Recession in Britain and the USA

Abstract

ABSTRACT For two of the richest English‐speaking countries, Britain and the United States, growing income inequality has been a persistent feature of the past thirty years, leading some economists to question the cosy assumption that as economic development proceeds, intra‐country inequality must ultimately fall. Various hypotheses have been advanced to explain this phenomenon, the best known being that the technological revolution has driven a wedge between skilled and unskilled labour, but none is remotely convincing. Fundamentally, it is a question of political economy whether under conditions of stagnant real wages and a falling wage share, growth in deregulated, finance‐driven economies can last. The argument advanced here is that probably it cannot. The profit squeeze of the 1970s having given way to a neoliberal wage squeeze, growth came to depend on asset bubble driven consumption and investment. The Great Recession of 2008 raises questions not merely about neoliberal beliefs, but about whether future capitalist growth can occur unless investment is socialized.

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