Why Is Wealth/Income Inequality Soaring?

If conventional labor and finance capital have lost their scarcity value, then the era in which financialization reaped big profits is ending.

Why is wealth/income inequality soaring? The easy answer is of course the infinite greed of Wall Street fat-cats and the politicos they buy/own.

ut greed can’t be the only factor, for greed is hardly unknown in the bottom 90% as it is in the top .1%. The only difference between the guy who took out a liar loan to buy a house he couldn’t afford so he could flip it for a fat profit and the mortgage broker who instructed him on how to scam the system and the crooked banker dumping toxic mortgage-backed securities on the Widows and Orphans Fund of Norway is the scale of the scam.

The difference isn’t greed, it’s the ability to avoid the consequences or have the taxpayers eat the losses, i.e. moral hazard. The bottom 90%er with the liar loan mortgage and the flip-this-house strategy eventually suffered the consequences when Housing Bubble 1.0 blew up in spectacular fashion.

Moral hazard describes the difference between decisions made by those with skin in the game, i.e. those who will absorb the losses from their bets that go south, and those who’ve transferred the risks and losses to others.

The too-big-to-fail banks that bought political protection simply shifted the losses to taxpayers. Then the Federal Reserve helpfully paid banks for deposits at the Fed while reducing the amount banks had to pay on depositors’ savings to bear-zero, effectively rewarding the banks with free money for ripping off the taxpayers.

America’s financialized cartel-state system institutionalizes moral hazard. This is one cause of rising inequality, as the super-wealthy are immunized by their purchase of political influence.

The top .1%’s share of the pie has been rising in the era of financialization and institutionalized moral hazard, everyone else’s share has declined: