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Alan Greenspan: Don't Blame Capitalism For All This Income Inequality

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Say what you will about income inequality to ex-Federal Reserve Chairman Alan Greenspan, just don't blame the free market.

In an op-ed for the Financial Times Thursday, Greenspan wrote that the "legitimate concern of increasing inequality of incomes reflects globalisation and innovation, not capitalism."

The Occupy movement, presidential campaign and slow economic recovery have brought renewed attention to the growing gap between the rich and the poor. In the U.S., the top one percent of earners have seen their incomes skyrocket in recent decades while those of everyone else sputtered, potentially threatening economies worldwide.

The root cause for the growing gulf remains a subject of much debate.

Yet a major driver of that division, most obviously, is that the richest global citizens have become much, much wealthier. An indication of exactly how wide the gulf has gotten: That six Walmart heirs were worth the same amount as the bottom 30 percent of Americans in 2007.

But while Greenspan pins the blame on the process of globalization itself, a 2003 study from the United Nations University found globalization to only account for 7 to 11 percent of the variation in income inequality among countries worldwide. In addition, it seems that increased globalization in the form of a trade boost did little to push America's rich and the poor further apart during the 1990s, according to a 2010 report by Slate's Timothy Noah.

In addition, there are also factors within individual countries themselves that may contribute to a rise in income inequality more than globalization. In the U.S. for example, the combination of a more regressive tax code and growing capital gains -- or the sale of property and investments -- have pushed up income inequality.

It's likely that innovational factors cited by Greenspan are having a more profound effect on income inequality than globalization itself. That's the finding of a 2008 IMF report, which found technological process was having a larger influence than the combined effects of trade and financial globalization.

That's possibly because, at the same time that the rise of computers required more highly skilled workers, the rate at which Americans were acquiring those skills was getting slower, according to the Slate report. With so few skilled workers available, their salaries went up, while those of their less-skilled counterparts did not.

This barrier to education contributed to increasing income inequality in other ways. More than three-quarters of high school graduates from high-income families graduate college, while only slightly more than half of their low-income counterparts finish college, according to White House research, exacerbating the gap between the rich and the poor. In addition, low- and middle- income students are way more likely to eliminate a college choice from their application process based on cost.

And even for low- and middle-income students who do make it to college, many are saddled with debt for much of their lives. About 60 percent of students borrow money to complete college, according to the White House research.

But student loan debt isn't the only barrier to moving up the income ladder. In the lead up to the recession, Americans ramped up their use of credit cards in the two decades leading up to the recession, leading to a nearly five-fold increase in revolving debt -- a burden that held them back even more when the economy crashed.

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