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Standard & Poor’s: To help economy, fix widening gap between rich and poor

An unusual voice argues the rich-poor gap is hurting our economy: Standard & Poor’s.

The rating agency isn’t known for wading into political fights or taking sides on  controversial issues. But this may be a sign that among economists, the danger of an increasing wealth gap isn’t so controversial anymore.

“A lifeboat carrying a few, surrounded by many treading water, risks capsizing,” says the new analysis by Standard & Poor’s, according to the Associated Press.

Here’s part of the story:
The widening gap between the wealthiest Americans and everyone else has made the economy more prone to boom-bust cycles and slowed the 5-year-old recovery from the recession.

Economic disparities appear to be reaching extremes that “need to be watched because they’re damaging to growth,” said Beth Ann Bovino, chief U.S. economist at S&P.

The rising concentration of income among the top 1 percent of earners has contributed to S&P’s cutting its growth estimates for the economy. In part because of the disparity, it estimates that the economy will grow at a 2.5 percent annual pace in the next decade, down from a forecast five years ago of a 2.8 percent rate.

Entrepreneur Nick Hanauer made a similar argument in a Politico piece entitled, “The pitchforks are coming for us plutocrats.” He argued that conventional wisdom for rich business owners like him – to squeeze wages and fight for more tax cuts for the 1 percent – was actually bad for business.

Standard & Poor’s says economic growth in the United States would get boosted by narrowing the economic gap, preferably by better education. One extra year of education for the average American worker would boost growth by half a percentage point, according to the report.

Increasing the gap between and rich and poor, on the other hand, tends to worsen the natural boom and bust cycle of economies.