Growing Economic Inequality the Root Cause of Economic Stagnation

Robert Creamer – Political organizer, strategist and author Posted: 7/11/11 09:03 AM ET

Last Friday’s jobs numbers showed a net growth of only 18,000 new jobs nationwide — while the economy must produce 150,000 jobs each month just to absorb population growth. Clearly the economic recovery has stalled and Republicans are pointing to the slowdown as evidence that American economic policy must once again turn sharply to the right.

Trouble is, rather than being a solution to our country’s economic woes, the growing economic inequality their policies have caused was the root cause of the 2008 economic collapse and the economic stagnation that America has experienced since. That burgeoning economic inequality must end if we are to restore the American middle class — and give our children an opportunity for a prosperous future.

The chief characteristic of private sector economic activity is that it is incredibly responsive to consumer demand. At its best, that’s what makes it such an innovative, efficient and powerful engine of economic growth. If private sector entrepreneurs and businesses can identify even a glimmer of consumer demand for some new product or service, someone will figure out how to provide it. But there’s a hitch. The consumers who want the product or service need to have the money to pay for it.

So the private sector’s greatest strength is also potentially its greatest weakness — its Achilles Heel. If, for whatever reason, consumers as a group don’t have the money to buy a growing number of products and services, the private sector economy will stagnate.

Right now there are plenty of people out there who desperately need all sorts of products and services that they don’t have the money to buy. The problem isn’t that businesses don’t have the capital to meet the demand. Corporations are sitting on almost two trillion dollars in cash. They are looking for somewhere to deploy that money where it can earn them a return — where consumers have the money to buy some new product or service.

The problem is that there aren’t enough consumers with money in their pockets.

But that i