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From Marx to Morgan Stanley: Inequality and Financial Crises

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  • Michael Lim Mah-Hui
  • Khor Hoe Ee

Abstract

Dispite robust growth, rising inequality is widespread in manu countries. At the same time financial instability and crises are occurring with greater frequency and severity. These two phenomena are related to the contest for a greater share of economic output between labor and capital, with capital gaining a greater share over the past few decades. As a result, there is a tendency towards falling‐consumption by the average household and rising savings by a rich minority that could cause stagnation in the economy. This contradiction between falling consumption and rising saving is “resolved” through the financial system by the recycling of funds from the rich minority to the average household in the form of credit. Financial engineering in the U.S. exacerbated this process that led to excessive lending and borrowing, and the creation of an unsustainable debt and asset bubble that eventually imploded. There is a similar tendency towards greater inequality, falling share of consumption, and rising share of savings and investment in China. However, in the context of a globalized world economy, the contradiction is “resolved” through a recycling of the “excess savings” from China to the U.S. adding to the debt and asset bubble in the U.S.

Suggested Citation

  • Michael Lim Mah-Hui & Khor Hoe Ee, 2010. "From Marx to Morgan Stanley: Inequality and Financial Crises," Working Papers 2010/13, Turkish Economic Association.
  • Handle: RePEc:tek:wpaper:2010/13
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    File URL: http://www.tek.org.tr/dosyalar/MAH_HUI_Marx_to_Morgan_Stanley.pdf
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    Cited by:

    1. Thomas Goda, 2017. "A comparative review of the role of income inequality in economic crisis theories and its contribution to the financial crisis of 2007-2009," REVISTA FINANZAS Y POLÍTICA ECONÓMICA, UNIVERSIDAD CATOLICA DE COLOMBIA, vol. 9(1), pages 151-174, February.

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