The trouble with blaming economic inequality for many of our economic ills is that the theory doesn't fit the facts. One theory is that growing inequality caused many low- and middle-income Americans to over-borrow so they could keep up with wealthier Americans.
This borrowing allegedly led to the credit bubble and the Great Recession. The recovery has been plodding — the theory continues — because so many strapped households don't earn enough to dig their way out of debt. A skewed income distribution is at the core of our problems.
It's a seductive argument because hardly anyone champions today's extreme inequality. But that doesn't settle the issue. As I pointed out in a recent column, blaming inequality for the credit bubble fails a rudimentary test of logic.
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