Fed Chief Issues Warning on Income Gap Federal Reserve Chairman Ben Bernanke says a widening U.S. income gap threatens economic progress. But he urges policymakers to avoid actions that could limit international trade or the flexibility of labor markets.
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Fed Chief Issues Warning on Income Gap

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Fed Chief Issues Warning on Income Gap

Fed Chief Issues Warning on Income Gap

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STEVE INSKEEP, host:

Federal Reserve Chairman Ben Bernanke had a warning yesterday. He said growing income inequality could threaten the dynamism of the U.S. economy. But he cautioned against policies that could hurt economic growth. Bernanke's extensive remarks on this subject came as Democrats in Congress consider legislation aimed at closing the income gap. NPR's John Ydstie reports.

JOHN YDSTIE: In his speech to the greater Omaha Chamber of Commerce, Bernanke cited statistics that show a growing share of U.S. income going to people on the top rungs of the income ladder. For instance, he said the top 10 percent of workers saw their inflation-adjusted incomes rise by a third in the past 25 years, while workers at the bottom saw almost no gain.

In the same period, the share of income going to the top 1 percent of workers has doubled. Bernanke said technological change, globalization and the fading influence of unions all have contributed to growing income inequality. Countering that widening income gap is necessary, he said, in order to maintain the public support for a dynamic economy.

Mr. BEN BERNANKE (Federal Reserve Chairman): If we did not place some limits on the downside risks to individuals affected by economic change, the public at large might become less willing to accept the dynamism that is so essential to economic progress.

YDSTIE: Bernanke said that no one should be allowed to slip too far down the economic ladder, especially for reasons beyond his or her control. But the chairman warned against responding to growing income inequality with policies that could undermine the very forces that fuel economic growth.

Mr. BERNANKE: Tendering the adoption of new technologies or inhibiting trade flows would do far more harm than good, as technology and trade are critical sources of overall economic growth and in increases in the standard of living.

YDSTIE: A better approach, said the Fed chairman, was to allow growth-enhancing forces to work, but to try to cushion their negative effects with policies to help retrain dislocated workers and assist them in finding new jobs. He also suggested improving education and expanding the portability of health and pension benefits to make it easier for workers to change jobs.

John Ydstie, NPR News, Washington.

INSKEEP: Now the average American family has done well in the past quarter century, but the very rich have done much, much better. And you can explore NPR's series on income inequality at npr.org.

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