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Wealth disparity hinders our economy

By Staff | Jul 1, 2022

To the editor:

The Federal Reserve has raised the interest rate, because it can; making money tighten to discourage spending. It is an appropriate tool to cool the purchase power that “heats” the economy. Slowing down spending is the predictable result. In a nation with a consumer-based economy hitting money consumers with a hammer when they try to buy goods is the tool allocated to the Fed. But what if our economic troubles lie not just in our monetary policy, but elsewhere? What if the rise in gas costs that has driven the recent price gouging orgy is unaffected by this rise in interest rates? What if consumers driving to work continue to purchase gas for their car to get there?

What if the problem is the stagnation of money’s velocity when pooling wealth in ponds of a tiny handful of people? In our nation a very few rich are getting richer; the poor more plentiful and more poor, and our national debt soars. Soaring deficit will be pushed up by continuing inequity and demand constraints. The monetary policy of raising interest rates, should be coupled with incentivizing the wealthy to release their vast resources to investment back into the national economy (as opposed to buying back stock schemes).

The Gini coefficient is a handy math tool used by economists to measure disparity. It measures the difference between the wealth of the people within a nation. History shows that a pooling of wealth to the billionaire few is predictive of national, economic and monetary danger. That pooling, the loss of velocity in the circulation of money, can be problematic. Using Gini’s formula, we can see we are putting much of our nation’s wealth into the hands of a very few. Not surprisingly, high wealth households are more likely to squirrel away at least 30% of their income, removing that money from activity. The poorer households save almost nothing, .5% of their income.

To incentivize wealth being reinjected locally, (not overseas) a higher tax on idle wealth would get money managers suggesting local investment rather than stock buy backs. Allowing workers to join unions, and encouraging diversity in hiring are other ways to naturally redistribute monetary value that would enhance the overall economy. Auntie Mame was correct, “Money is like manure, it only grows when you spread it around.” These other tools can be legislated to stimulate healthy economic growth. The interest rate hammer is the only tool available to the Fed. But, not every economic problem can be solved by it. Mitigating disparity has to become a legislative priority as well.

Ellen Starbird

Cape Coral