Saturday, October 02, 2010

What Happens If The Pie Doesn't Grow?

Gillian Tett:

In the four decades after the second world war, the richest 1 per cent of Americans received just over 10 per cent of national income each year. However, from the 1980s that ratio rose sharply, until by 2007 it hit almost 25 per cent. The financial crisis has reversed this trend a little. Emmanuel Saez, a California-based economist, reckons the wealthiest incomes fell by 19.7 per cent in 2008, while the other 99 per cent of Americans saw earnings drop by 6.9 per cent. But a survey by the Pew Research Centre shows two-thirds of Americans think government policies have aided the wealthy in the past two years – at the expense of the poor and middle class.

In recent decades, American leaders have generally avoided discussing how the country divides up its economic pie, because of optimism that the pie would always grow. There was also little sense of resource constraint: this is a country founded by pioneers who believed that when land ran out in the East, you simply had to “Go West!”

But these days there is a growing recognition that resources are not always bottomless. There is also rising doubt about whether the economic pie will keep growing, given America’s structural woes.

So how will America respond? If the pie stops growing, can it be divided up without social fracture?