Economists in survey find U.S. income gap detrimental

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WASHINGTON -- The growing gap between the richest Americans and everyone else isn't bad just for individuals. It's hurting the U.S. economy.

So says a majority of more than three dozen economists The Associated Press surveyed last week. Their concerns tap into a debate that has intensified, as middle-class pay has stagnated while wealthier households have thrived.

A key source of the economists' concern: Higher pay and outsize stock market gains are flowing mainly to affluent Americans. Yet these households spend less of their money than do low- and middle-income consumers, who make up most of the population but whose pay is barely rising. "What you want is a broader spending base," says Scott Brown, chief economist at Raymond James, a financial advisory firm. "You want more people spending money."




Those trends have fueled an escalating political debate. In a speech this month, President Barack Obama called income inequality "the defining challenge of our time." He also called for an increase in the federal minimum wage, now $7.25. House Republican leaders oppose an increase, arguing that it would slow hiring.




Three-quarters of the economists surveyed don't think the Fed is ready to announce a pullback in its economic stimulus. Speculation has been rising that the Fed will soon scale back its $85 billion in monthly bond purchases because of the economy's steady gains. The bond purchases have been intended to keep long-term loan rates low, to induce people to borrow and spend.Most of the economists think the Fed will begin slowing its bond buying in January or March.

Economists appear to be increasingly concerned about the effects of inequality on growth. Mr. Brown, the Raymond James economist, says that is a shift from a few years ago, when many analysts were split over whether pay inequality was worsening. Now, he says, "there's not much denial of that, ... and you're starting to see some research saying, yes, it does slow the economy."


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