Negative Trickle-Down and the Financial Crisis of 2008

Richard Holt and Daphne Greenwood

Journal of Economic Issues, 2012, vol. 46, issue 2, 363-370

Abstract: Substantial increases in income inequality contributed to the financial crisis of 2008 according to many researchers. We focus here on negative externalities from inequality that make financial well-being decline more rapidly than real income measures indicate. Housing, with its relatively inelastic supply, relationship to local public goods, role in establishing status and dependence on mortgage finance is used to illustrate the negative trickle-down effect. Increasing concentration of economic power results in political power that alters the regulatory structure. Along with contributing to financial instability and sluggish recovery this is an additional negative externality.

Date: 2012
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DOI: 10.2753/JEI0021-3624460211

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