Changes in income distribution, financial disorder and crisis

19/07/2011 § Leave a comment

This essay intends to discuss the main interpretations of the current crisis advanced over the last two years, as well as the main policy lines that have been suggested to overcome the crisis. Confronting this approach, we shall put forward an interpretation based on a contribution we wrote before the outbreak of the crisis on the long-term implications of the rising US household debt. From that contribution, an explanation of the crisis can be derived that locates its source in the real sphere of the economy, and in which the current ‘financial disorder’ is viewed in primis as an effect rather than a cause. The ‘real’ nature of the crisis is arrived at by connecting the growing US household debt to the marked changes in income distribution recorded over the last decades. Changes in distribution are thus seen as the fundamental determinant of the crisis, rather than as a consequence of the increased weight of the financial sector, with its wealthy remuneratios. Confronting the prevailing explanations of the crisis with our own, alternative policy implications emerge, which are discussed in the concluding section of this essay. pdf

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