... are actually about more than just 'injustice' or exploitation. Income disparities arise in societies that are near the end of their social life. Most historical studies show that. In the immediate sense, the more money moving up the food chain results in more speculation, more financial instruments, more luxury goods spending, and 'dislocates' a whole economy. It creates a financial overhang that is fatal to actual economic facts.

The biggest sector in the U.S. economy, since 2005 or so, is now 'finance' not manufacturing, not services. This is a function of the disparity of wealth. Speculation is what is behind the securitization of sub-prime mortages and now the immense unregulated "credit default swaps" market. The financial capitalist 'gas' of unfettered billions has nowhere to go but 'up.' And from speculation comes ... possible collapse.

Greenspan, aka Ayn Rand, approved of these bubbles and helped create them. He specifically approved of the $45.5T 'credit default swaps' market, because he said it spread risk around. It certainly did ... it made risk 'systemic.' You need firewalls against private risk, not inviting it into everyone's home. There are no firewalls anymore. The Fed is bailing as fast as it can, but it might not be able to 'balance' the ship. That is why economic disparity is a financial risk, not just a social risk. It gives the billionaires a license to speculate. And if they fail, that will certainly 'trickle down.'

It is concerning to me that an article like this could be written without much mention of the war--because the war is the primary culprit for our current economic woes, and our economy will not start to get better until we stop spending money on Iraq.

And the better comparison here is not to the Great Depression (prices fell then rather than rose, and the Fed deflated the currency rather than inflating it as is now being done), but to the post-Vietnam stagflation, which itself was the second worst economic period of the twentieth century.

Simply put, the Fed has been keeping rates artificially low, and the US government has been printing money and incurring record debt to finance a three trillion dollar war. Stop spending on Iraq, and rein in inflation (which will of necessity require a not-fun period of higher interest rates) and things will get to a much better place.

Bush squandered our peace dividend.

From my studies, much of Wall Street is built on a foundation of cards. Many of today’s money making instruments are simply paper shuffles. But eventually the paper shuffling has nowhere to go, ending up as a Ponzi scheme.

And though no one may believe the following, government mandated reporting requirements and statistical analysis have changed drastically in the last 7 years. Comparing today’s numbers against numbers from 10 years ago is a meaningless endeavor, except to hide the financial disaster that is already here. Things appear fairly stable, but that is only because the data is skewed.

If an administration comes into power in the next year that is not tied to the current Bush administration, they will be facing a crisis that they had no idea existed. As stated in the article, the current money making mantra is: squeeze any money out of any source, even if the source gets destroyed, because we will be covered by a bailout, and to hell with anyone else. The future is now and there is no accountability.

Today’s great problem solvers in Washington work in the following manner.

Problem: Cars are polluting too much. The pollution has reached 92% on the pollution index.

Solution: Increase the top limit of the pollution index. All of a sudden, pollution that was measured at a 92% rank (in relation to the top limit), is now at a 71% rank. Then pronounce how well pollution is being controlled by the forward looking administration.

I put myself badly, lets give it another bash.

You see, the way I see it, if there is that large gap you have a situation where the tax rate can afford to go up on the top end.

These taxes don't go up just for the sake of the poor though, they go up because you have expenses and they need to be paid.

The wealth gap would not be an issue if America was in a surplus position, but when that wealth gap is present and you are in a huge deficit position, you need to consider the super-wealthy as your first source of income.

The gap would not be so wide, if the wealthy really needed that extra money.

Now of course some of this additional money goes into wealth redistribution, it has to. The guys you hire to fix your roads, will be poorer than your average CEO - but the trick is not to simply give money away, but rather find ways to make that money work for the country.

What your argument seemed to me to be about (I could have misread what you meant) was the idea that the income gap is meaningless. It isn't, it points to the most painful truth of how to get out of trouble, the truth that FDR figured out and got called a "Class traitor" for, that the rich can afford to pay higher taxes.

The trouble is, the rich are also the guys who own your media and your government. This means that this source of potential money gets ignored, and the general idea of higher taxes is sold as being about giving the money away to the poor.

This is also why in the past, income disparity often predicted social collapse - the rich were comparatively sheltered tax-wise, which meant higher taxes on the poor, which meant revolution as the poor got sick of starving.

But Wall Street's hunger for high-yielding complex financial instruments, that alphabet soup of CDOs and CMOs and countless other inscrutable derivatives

Andrew:

It wasn't a hunger for yield that lead to the proliferation of CDOs and the like--it was the hunger for AAA-securities. Lots of institutions get to count as capital (banks) or have to hold (some pension funds) AAA securities. CDOs, CMOs, CLOs, etc. package non-AAA instruments/securities and create a tranche of AAA securities.

Only small pieces of CDOs were "high-yielding" and the risk tolerant buyers of the junior pieces were not the driving force behind the frequent use of the structure. You simply have the motivation backward.

Of course, it turns out a lot of those AAA tranches were a lot bigger than they should have been (i.e., 90%+, when 50% might have been reasonable), especially in CDO-squared structures. And that's a fundamental source of the major problems banks are having.