



‘You Opened My Eyes to the Catastrophic Enormity of This Financial Debacle’

The spontaneous and apparently unfocused street demonstrations on Wall Street and elsewhere in the world — the London riots, a Chilean student revolt, Indian corruption protests, the Arab Spring — are the unsurprising result of the failure of both European-style socialism and American capitalism. Both forms of economy and their many flavors abroad have fostered fundamental inequality, says economist and author Nouriel Roubini.In China and India, it’s simply the rich-getting-richer in a sea of poverty and corruption. But in the developed world incomes have dramatically diverged as well, Roubini explains in an Op-Ed for Project Syndicate.While Europe made up the difference by taxing and spending, the Anglo-Saxon approach was to extend credit.__________________________________________________________

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Nouriel Roubini

(Getty Images photo)

“The increase in private- and public-sector leverage and the related asset and credit bubbles are partly the result of inequality. Mediocre income growth for everyone but the rich in the last few decades opened a gap between incomes and spending aspirations,” Roubini writes.Neither approach works for long, he warns. Credit is now gone, and the resulting decline in consumer demand means jobs must be slashed. “The result is that free markets don’t generate enough final demand,” Roubini writes.Nor is the problem likely to end without major change, Roubini says.“Any economic model that does not properly address inequality will eventually face a crisis of legitimacy,” he contends.Money manager James Chanos tells Bloomberg Radio that he fears the growing income gap could sap investment markets for long periods.“Income inequality in this country is just getting worse and worse and worse,” Chanos said.“And that is not a recipe for stable economic growth when the rich are getting richer and everybody else is being left behind.”