Wealth gap seen as slowing U.S. recovery

By JOSH BOAK, Associated Press Published: August 6, 2014
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— Economists have long argued that a rising wealth gap has complicated the U.S. rebound from the Great Recession.

Now, an analysis by the rating agency Standard & Poor’s lends its weight to the argument: 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.

S&P concerns

The S&P report advises against using the tax code to try to narrow the gap. Instead, it suggests that greater access to education would help ease wealth disparities.

Part of the problem is that educational achievement has stalled in recent decades. More schooling usually translates into higher wages. S&P estimates that the U.S. economy would grow annually by an additional half a percentage point —or $105 billion — over the next five years, if the average the American worker had completed just one more year of school.

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