ABSTRACT
This chapter narrates the most important points about inequality and financial crises. Inequality cycle is divided into the usual four phases: recovery, prosperity, crisis, and recession. The growing inequality, based on the basic institutions of capitalism, is a major cause of the crisis that follows the Prosperity phase of each expansion. The slower growth of aggregate demand is also based on the usual increase in the trade deficit at the end of the prosperity phase of the cycle. In a crisis, the economic world of capitalism turns upside down. During the crisis, government taxes automatically decline as income declines. The fact that government tax revenues are falling, while government spending is rising to meet the payments necessary in a recession, results in a stronger flow of money from the government into the economy. The recovery from a depression may remain relatively weak in terms of production and employment growth.
