Ezra Klein points out that the largest increases in inequality have preceded large financial crises.

That chart, released in 2008 by the Center for Budget and Policy Priorities, trumpeted the finding that inequality was at its highest level since 1928. And indeed it was. We all know what happened in 1929, of course. And at this point, we also know what happened in 2008.

Now, it might be a coincidence that the two mega-crashes of the last 100 years were preceded by unparalleled concentrations of domestic wealth. But that seems like a pretty big coincidence.

I don’t think its a coincidence but I don’t think its particularly revealing either. Essentially, what you are saying is that periods in which people are making a oversized and unsustainable profits trading some asset is a period in which some people will have lots more money than others.

In some ways this would tend to lessen our concern on about inequality as a sign of a deeper problem within the system. This would suggest that movements in inequality don’t have much to do with the long term trends working people face but the short term booms and busts that the wealthy face.

This is consistent with the smaller boom and bust associated with the dot-com bubble. Inequality increased sharply during the 90s but a good chunk of that was taken right back when the market crashed.

Advertisement