Income Inequality reaches all time highs

Do you worry about income inequality as much as I do? Probably not, because ultimately everyone wishes they were rich and they really don't care how much of the wealth is held by the richest Americans as long as they can one day be among them. I also know this topic is unlikely to gain much traction as income redistribution is a "socialist" concept to most Republicans. But just as it looked like all hope was lost, there is some new research that suggests that when the income gap between rich and poor becomes too large it can actually hurt the economy.

In an interesting op-ed piece in the NY Times, titled Our Banana Republic, Nicholas D. Kristof points out that the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana. As evidence: the richest 1% of Americans now take home almost 24% of income, up from almost 9% in 1976. If that doesn't surprise you, try this: from 1980 to 2005, more than 80% of the total increase in American incomes went to the richest 1 percent.

OK, so those are just some boring statistics that show the rich are getting much richer while the rest of us are treading water. What's the problem? The problem is that these mega-rich folks are buying bigger houses, fancier cars, and putting caviar on everything while the folks on the next rung down are going into serious debt trying to keep up. Credit card companies and mortgage brokers took advantage of this increasing need for credit and before you know it, we have a full blown financial crisis.

As we are now realizing, the average American has seen real income decrease over the last 20 years and like the government, we have been financing our flat screen TVs with the hope that our house prices would always go up and we'd some how never have to pay more than the minimum payment on our credit cards.

You can read the research by Robert H. Frank of Cornell University, Adam Seth Levine of Vanderbilt University, and Oege Dijk of the European University Institute at the Social Science Research Network. They looked at census data for the 50 states and the 100 most populous counties in America, and found that places where inequality increased the most also endured the greatest surges in bankruptcies and divorces.

Another disturbing statistic to close - the last time America saw such a large income inequality was in the years preceding the Great Depression. Something to think about as we debate extending the Bush tax cuts for the richest Americans.