Inequality and Instability: A Study of the World Economy Just before the Great Crisis

Inequality and Instability: A Study of the World Economy Just before the Great Crisis

Inequality and Instability: A Study of the World Economy Just before the Great Crisis

Inequality and Instability: A Study of the World Economy Just before the Great Crisis


As Wall Street rose to dominate the U.S. economy, income and pay inequalities in America came to dance to the tune of the credit cycle. As the reach of financial markets extended across the globe, interest rates, debt, and debt crises became the dominant forces driving the rise of economic inequality almost everywhere. Thus the "super-bubble" that investor George Soros identified in rich countries for the two decades after 1980 was a super-crisis for the 99 percent-not just in the U.S. but the entire world.

Inequality and Instabilitydemonstrates that finance is the driveshaft that links inequality to economic instability. The book challenges those, mainly on the right, who see mysterious forces of technology behind rising inequality. And it also challenges those, mainly on the left, who have placed the blame narrowly on trade and outsourcing. Inequality and Instability presents straightforward evidence that the rise of inequality mirrors the stock market in the U.S. and the rise of finance and of free-market policies elsewhere. Starting from the premise that fresh argument requires fresh evidence, James K. Galbraith brings new data to bear as never before, presenting information built up over fifteen years in easily understood charts and tables. By measuring inequality at the right geographic scale, Galbraith shows that more equal societies systematically enjoy lower unemployment. He shows how this plays out inside Europe, between Europe and the United States, and in modern China. He explains that the dramatic rise of inequality in the U.S. in the 1990s reflected a finance-driven technology boom that concentrated incomes in just five counties, very remote from the experience of most Americans-which helps explain why the political reaction was so slow to come. That the reaction is occurring now, however, is beyond doubt. In the aftermath of the Great Financial Crisis, inequality has become, in America and the world over, the central issue.

A landmark work of research and original insight,Inequality and Instabilitywill change forever the way we understand this pivotal topic.


In theory, theory and practice are the same. in practice, they aren’t.
—Attributed to Yogi Berra

In the late 1990s, standard measures of income inequality in the United States—and especially of the income shares held by the very top echelon — rose to levels not seen since 1929. It is not strange that this should give rise (and not for the first time) to the suspicion that there might be a link, under capitalism, between radical inequality and financial crisis.

The link, of course, runs through debt. For those with a little money, it is said, the spur of invidious comparison produces a want for more, and what cannot be earned must be borrowed. For those with no money to spare, made numerous by inequality and faced with exigent needs, there is also the ancient remedy of a loan. the urges and the needs, for bad and for good, are abetted by the aggressive desire of those with money to lend to those with less. They produce a pattern of consumption that for a time appears broadly egalitarian; the rich and the poor alike own televisions and drive automobiles, and until recently in America members of both groups even owned their homes. But the terms are rarely favorable; indeed, the whole profit in making loans to the needy lies in getting a return up front. There will come a day, for many of them, when the promise to pay in full cannot be kept.

The stock boom of the 1920s was marked by the advent of the small investor. Then the day came, in late October 1929, when margin calls wiped them out, precipitating a run on the banks, from which followed industrial collapse and the Great Depression. the housing boom of the 2000s was marked by a run of aggressively fraudulent lending against houses, often cash-out refinancings to the . . .

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