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Are our problems limited to the corrupt actions of individual investment firms? Or does this crisis go deeper?

Question/Comment: You explain the investment aspect of this crisis very well. I’d like to know more about how the market’s collapse reflects the structural problems of the U.S. economy. Are our problems limited to the corrupt actions of individual investment firms? Or does this crisis go deeper? I keep hearing about two major problems — the “rise of the rest” and the bifurcation of American wealth. Can better government policy actually get us out of this mess?

Paul Solman: Whew. That’s a lot of ground to cover. No, I don’t think corrupt firms are the end of the story. Or even very much of it. Perverse incentives are the real driver, though I acknowledge that the extent to which privileged individuals and industries influence the political process has a lot to do with it. As does the ideology they have spent time and money to promulgate.

But regardless of how it happened, I think we’ve become an overleveraged economy over the past few decades, living beyond our means by borrowing money with absurdly thin margins for error. And we’ve become a bifurcated economy as well. In other words, just what the scolds have been saying for years. Many years.

Government policy? Well, as to bifurcation (increasing inequality of income and wealth, that is), the Bush tax cuts have certainly increased it. The policy of extending them would presumably do the same. By the “rise of the rest,” do you mean China? If so, that might be good for Americans, I would think. A billion more players in the global economy. More new ideas. More wealth. More folks to sell to.

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