Predatory Lending

Others dispute the importance of consumption over income, pointing out that if middle
and lower income are consuming more than they earn it is because they are saving less
or going deeper into debt. Income inequality has been the driving factor in the growing
household debt, as high earners bid up the price of real estate and middle income
earners go deeper into debt trying to maintain what once was a middle class lifestyle.
Central Banking economist
Raghuram Rajan argues that
"systematic economic inequalities,
within the United States and around
the world, have created deep
financial 'fault lines' that have made
[financial] crises more likely to
happen than in the past" – the
Financial crisis of 2007–08 being
the most recent example. To
compensate for stagnating and
declining purchasing power, political pressure has developed to extend easier credit to
the lower and middle income earners – particularly to buy homes – and easier credit in
general to keep unemployment rates low. This has given the American economy a
tendency to go "from bubble to bubble" fueled by unsustainable monetary stimulation.
Monopolization of Labor, Consolidation, and Competition
Greater income inequality can lead to monopolization of the labor force, resulting in
fewer employers requiring fewer workers. Remaining employers can consolidate and
take advantage of the relative lack of competition, leading to less consumer choice,
market abuses, and relatively higher real prices.
Economic Incentives
Some economists believe that one of the main reasons that inequality might induce
economic incentive is because material well-being and conspicuous consumption relate
to status. In this view, high stratification of income (high inequality) creates high
amounts of social stratification, leading to greater competition for status.
One of the first writers to note this relationship, Adam Smith, recognized "regard" as one
of the major driving forces behind economic activity. From The Theory of Moral
Sentiments in 1759:
[W]hat is the end of avarice and ambition, of the pursuit of wealth, of power, and preeminence?
Is it to supply the necessities of nature? The wages of the meanest labourer
can supply them... [W]hy should those who have been educated in the higher ranks of
life, regard it as worse than death, to be reduced to live, even without labour, upon the
same simple fare with him, to dwell under the same lowly roof, and to be clothed in the
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