A group of European Physicists consider the following
question - When does inequality freeze an economy?
Non-technical summary of the research findings:
“The researchers
found another interesting effect -- a “trickle up” flow of wealth quite
different from the usual “trickle down” picture of supply-side economics. In an
economy with appreciable inequality, capital tends to flow from those with less
to those with more, generating a cascade of transactions along the way. Hence,
policy interventions aiming to spur economic activity should work better if
they inject money into the system at the lower end, rather than from the top.
This fits with the
argument that quantitative easing -- in which central banks purchase securities
-- may ultimately be misguided. Such a policy is supposed to encourage spending
by propping up the prices of stocks and bonds, which tends to boost wealth only
at the top end of the distribution. Central bankers might have a more powerful
and beneficial effect if they instead injected money directly into the accounts
of citizens, who could then use it to pay down debts or spend as they like.”