Does Income Inequality Help Cause Financial Crises?

6 06 2011

Here is the article:

  1. Do you think that rising income inequalities is a primary cause of financial crises or a secondary cause?
  2.  Do you think it is possible that income inequalities are not a cause, but an effect of financial crises?
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9 responses

8 06 2011
Peter S

In my opinion, income inequality is an effect of financial crisis. Some rich people made a lot of money during the recession. Especially, if they have speculated on currency, while regular citizens lost their jobs and their debt burden has increased. Their income decreased as well because companies had to reduce their expenses.

8 06 2011
carolynewang

1. I think that income inequality is a secondary cause of financial crises, because even if there was a large divide between the incomes of the rich and the poor, people will still spend money. Income inequality would not cause a large enough decrease in consumer demand to lead to a financial crisis; rather, it makes a financial crisis worse by either decreasing the spending power of the poor or increasing the amount of money that the wealthy have to invest instead of spend.

2. Income inequality can be caused by financial crises. In Canada, for example, income inequality worsened after the economic crisis in 2008, because the middle class lost high paying jobs and had to replace them with lower paying jobs, which decreased their income. At the same time, the Canadian government provided businesses with a lot of money so that they can expand and allow the wealth to trickle down to the less wealthy through new jobs. However, businesses used the money to pay out larger bonuses to company executives instead. With higher incomes among the wealthy and lower incomes among the middle class, the gap between the rich and poor increased and income inequality became a bigger problem. Therefore income inequality can be caused by financial crises.

8 06 2011
nyaklha

i don’t think that income inequality was a primary reason for the financial crises, because even before the financial crises income inequality did exist but the gap was not as big as it was after the crises. even though its not a primary cause of the financial crises it is still a problem after the crises, many middle class people losing their jobs and therefore decreasing the spending within the economy.

8 06 2011
Nahee Kim

Income inequality can cause financial crisis and caused by financial crisis. However, in my opinion, Income inequality is mostly an effect of financial crisis. You can’t really tell what is causing what. But there is a higher percent that financial crisis is the reason for income inequality. Becuase of financial crisis happens in the economy such as recession, company will lose big part of their assets which the employees will have lower paying jobs instead of higher paying. This will also have decrease in consumer spending since their incomes will be lower than what it was before financial crisis didn’t happen.

8 06 2011
Maria Li

2) In my opinion, income inequality is an effect of the financial crisis. The reason for this is the funding that the government has been giving businesses. During the recession, a lot of people lost their jobs. Due to the desperate need for money, they’ve taken on lower wage work. These people have had to face a lifestyle of lower quality with their decreased income. Also, they are not contributing to GDP growth. Due to this, the government has been giving money to businesses in hopes of a trickle-down effect. However, instead of money eventually reaching lower wage earners, it has been used towards bigger pay cheques for the executives. Therefore, the financial crisis lead to a bigger gap between the rich and poor, and created more severe income inequality.

8 06 2011
lindashidilei

2. Income inequity can be a effect of financial crisis. Firstly, financial crisis can cause people to loss jobs but at the same time makes people become more rich because they make tons of money out of the crisis. In other word, rich gets more richer, poor becomes more poor, the gap between income inequity becomes wider and wider. The financial crisis leads to a more severe income inequity.

8 06 2011
Kiruban

1) I definatly think its a primary cause of the financial crisis because there a people living in personal debt whereas the banks have abundant amount of bonuses every year. This is the same money that is supposed to be used for stimulus spending and creating new jobs and growth. Is it really necessary to have all that cash? Money is just floating in the banks rather than benefiting the economy and the lower class people. That money should be better off circulating within the economy to benefit those lower class people who need it the most.

8 06 2011
jkeum132

1. In my opinion i believe that the income inequality was not a primary cause of the financial crisis. I believe it was more a secondary cause to the financial crisis. Just because a few CEO had more money than the “poorer” people, which includes the middle and the lower class, that doesn’t exactly make the poorer class to spend less or discourage spending. This is rather more an issue because it isnt helping our economy but rather pulling us down. However, i still believe it played a significant roles because stupid CEO got too greedy. I guess it CAN be said that because the CEO had lots of power, it may have caused this greed and with this greed, this stupid bought into these toxic assets.

9 06 2011
Chris Li

The financial crisis way the result of massive amount of investments on sub-prime mortgages and the housing bubble bursting. It did not matter that some people had more money than others. Thus, the financial crisis was not the result of income inequality. The financial crisis did however help the gap increase income inequality. While some investment banks made billions during the financial crisis, the lower and middle class people are losing jobs and are being forced to live on lower wages, so we can say that income inequality is a result of the financial crisis.

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