The result is that free markets don’t generate enough final demand. In the US, for example, slashing labor costs has sharply reduced the share of labor income in GDP. With credit exhausted, the effects on aggregate demand of decades of redistribution of income and wealth – from labor to capital, from wages to profits, from poor to rich, and from households to corporate firms – have become severe, owing to the lower marginal propensity of firms/capital owners/rich households to spend.
Read more at http://www.project-syndicate.org/commentary/the-instability-of-inequality#EMpWF46kppBF3r67.99
Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
