How Does Inequality Affect The Economy

The Extreme Inequality is Damaging to the Economy
In Jonathan Rauch’s article called The Wealth Divide Between Rich and Poor Harms the US Economy he talks about how the large gap between the upper class and the lower and middle classes is, contrariwise to past beliefs, actually quite harmful to the economy. So much so that it has and can causes depressions. Many progressives are beginning to believe that inequality has already reached damaging levels, which has not been the mainstream economic consensus for the past few decades. It was actually believed that inequality was economically neutral and did nothing to harm the economy. But evidence has appeared and been collected that supports the view that extreme inequality is, indeed, damaging
Stiglitz, a Nobel Prize-winning economist, who wrote in his book, The Price of Inequality, the following, "Widely unequal societies do not function efficiently, and their economies are neither stable nor sustainable in the long term, taken to its extreme—and this is where we are now—this trend distorts a country and its economy as much as the quick and easy revenues of the extractive industry distort oil- or mineral-rich countries." What Stiglitz is say is that the gap between the classes can, eventually, destabilize an economy. It may not seem like it does so in one moment of time, which has lead to past beliefs that inequality is not, indeed, harmful to the economy, but the budding evidences are beginning to prove otherwise. In Rauch’s article he says that, “Inequality is the price America pays for a dynamic, efficient economy; we may not like it, but the alternatives are worse. As long as the bottom and the middle [classes are] moving up, there is no reason to mind if the top is moving up faster, except perhaps for an ideological grudge against the rich—what conservatives call the politics of envy.” It is easy to summarize that what Rauch is saying is that inequality is a must have in order to have a good economy, as long as the lower classes have the abilities to move at, at least, a snail's paced up. But what can be overlooked is what he doesn’t say. Inequality is ineffective when it gets to the point where the bottom classes can not move up at
Rauch can be quoted in saying that “economists noticed something else: The last time inequality rose to its current heights was in the late 1920s, just before a financial meltdown. In 2010, Moss plotted inequality and bank failures since 1864 on the same graph; he found an eerily close fit. That is, in both the 1920s and the first decade of this century, inequality and financial crisis went hand in glove.” Here we have an obvious example of how inequality has a negative impact on the economy and a possible prediction of a similar occurrence happening once