More on recession and inequality

As the recession transformed into the Great Rececssion, I wondered back in February whether it would worsen the inequality. I remember having a hallway conversation about this with one of the very few faculty colleagues who are willing to talk with me. He was not sure, and he raised a good question: will the income inequality effects of the recession be different from the wealth inequality effects, or whether they will coincide?

Simon Johnson, the former IMF Chief Economist and now a MIT professor, does not explicitly answer the question of recession and inequality, but asks:

are we seeing the emergence of a two-track economy: one bouncing back in a relatively healthy fashion, and the other really struggling?

Guess which households are healthily bouncing back, and which ones are struggling? Johnson writes:

The top 10 percent of people are going to do fine, those in the middle of the income distribution have been hard hit by overborrowing, and poorer people will continue to struggle with unstable jobs and low wages.

Sounds like Johnson is saying that the recession is worsening the inequality in the US. He then adds:

The United States has, over the past two decades, started to take on characteristics more traditionally associated with Latin America: extreme income inequality, rising poverty levels and worsening health conditions for many. The elite live well and seem not to mind repeated cycles of economic-financial crisis.

Welcome to the latest banana republic: USA!