Economic Research: How Increasing Income Inequality Is Dampening U.S. Economic Growth, And Possible Ways To Change The Tide Credit Market Services: Beth Ann Bovino, U.S. Chief Economist, New York (1) 212-438-1652; [email protected] Secondary Contact: Gabriel J Petek, CFA, San Francisco (1) 415-371-5042; [email protected] Research Contributor: John B Chambers, CFA, New York (1) 212-438-7344; [email protected] Table Of Contents Is Income Inequality Increasing? When Ends Don't Meet Not Just The Fruits Of Our Labor The Impact Of Government Policy Undereducated Workers: Both Today's And Tomorrow's Catching Up With The Joneses Secular Stagnation Not Just A Problem For The Poor Striking A Palatable Balance WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 5, 2014 1 1351366 | 302136118 Table Of Contents (cont.) Glossary Of Relevant Terms Endnotes WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 5, 2014 2 1351366 | 302136118 Economic Research: How Increasing Income Inequality Is Dampening U.S. Economic Growth, And Possible Ways To Change The Tide The topic of income inequality and its effects has been the subject of countless analysis stretching back generations and crossing geopolitical boundaries. Despite the tendency to speak about this issue in moral terms, the central questions are economic ones: Would the U.S. economy be better off with a narrower income gap? And, if an unequal distribution of income hinders growth, which solutions could do more harm than good, and which could make the economic pie bigger for all? Given the decades--indeed, centuries--of debate on this subject, it comes as no surprise that the answers are complex. A degree of inequality is to be expected in any market economy. It can keep the economy functioning effectively, incentivizing investment and expansion--but too much inequality can undermine growth. Higher levels of income inequality increase political pressures, discouraging trade, investment, an