The top 1 percent receives 22.5% of all income, while the share of the bottom 90 percent is now below 50% for the first time ever. The top 10 percent receive just over 50% of all national income. Average individual income rose only $200 in real terms between 1975 and 2013 to $16,200, on par with the national average family income of Mexico.

It was not always so. This is a radical change from the post war era. From about 1944 until the early 1970’s, the share of the top 1 percent was about 11.3% and the share of income of the bottom 90 percent was about 67.5%, levels that posed no particularly serious problem and provided a sufficient investor class, The top 10 percent received 32.5% of all income before the early 1970’s
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This causes of this increased skew are clear, The rise in income inequality from the early 1970’s coincides with the collapse of unions as a countervailing power to corporate monopsony. At the same time, facing inadequate aggregate demand, corporate America elected to abandon marginal productivity pricing of labor in favor of progressive appropriation all of labor’s future productivity gains for itself in the forms of ever higher profits and increasing management compensation. Within the same time frame, corporate American off shored American manufacturing jobs in great number and without restraint and the government started seriously started granting favors and advantages to the rich against the public's interest in exchange for large campaign contributions.

Corporate America very heavily lobbied and bought off congress with campaign contributions to get tax and other laws and regulations changed in order to enhance their bottom lines at the expense of everyone else. Corporate welfare ascended, subsidies flowed and favors poured forth from congress. Finally, the superior intelligence, education and savvy of the top 10 percent help make all this happen and lined their pockets.

That is how we got to the skew where the top 1 percent receive 22.5% of all income, while the share of the bottom 90 percent is now below 50% for the first time ever, and the top 10 percent receive just over 50% of all national income. It was not by happenstance or mistake.

The problem of excessive income inequality is it hurts people below the top 10 percent or so in income by compromising their income and damaging their standards of living and it injures the operation of the economy as well. Many now have less income than they need and would spend, and a small minority have too much income and do not want to spend it all.

The rich who do not want to spend all their income, hoard much of their excess income in cash and in the form of secondary financial and other market assets. That is in used or pre-owned or already issued assets like stocks, bonds, existing houses, jewelry, art and such. Nothing newly made or issued. This is income that does not get spent in the real economy, but is diverted from the real economy instead into the markets for existing assets, the secondary markets.

Diverted, I say, because if income were more equally distributed, more people would spend more of that income on real goods and services currently produced and not in secondary asset markets. The result is the circular flow of money on expenditures and income in the real economy is relatively reduced, especially by the amounts diverted by the hoarding of the rich in those markets, which leads to further reduced aggregate demand and in turn reduced inventories and production. The economy is nailed to the floor and exists now in a new "lower low."

The idea is a liquidity trap where at some low set of interest rates, the rich, who have most of the income from inequality have a huge and growing appetite to hoard more of their income in secondary market assets and seek appreciation and capital gains and rents in those markets instead of lower real returns in real investment markets (with depressed interest rates). When the Fed holds rates down and increases the money supply, say by quantitative easing, secondary market asset prices are driven up even further, hoarding is increased and real investment and consumption are reduced even further. This is what a liquidity trap and hoarding mean, money withheld and diverted from the circular flow of money as current expenditures and income in the real economy.

Gains in the secondary markets are rents and other unearned income. Nothing is produced or created to get such rents or unearned income. Just position yourself well and hold your hand out. Beats working. Only fools think they are "investing" when they go into these markets. Their purchases are not counted in GDP because they are only asset shuffles and exchanges.

A more equal distribution of income would increase the income and expenditures of those who had less before, reduce the hoarding of income by the rich in like amount and the net effect would be to augment aggregate demand, improve the real economy and benefit the welfare of the overall population.

These factors and effects are well enough known and established but not a great deal is written about them, and little research is done on them, because to do so with any effort would result in the loss of personal income and promotions to faculty so engaged and general research funds for the top universities. The funding oligarchy disapproves of Keynes and this analysis and wants a lid kept on these matters, although more is leaking out all the time from places like Berkeley. Harvard, Chicago (my graduate alma mater) and MIT don't even teach this analysis of Keynes anymore. Libertarians now tow the oligarchy's propaganda line and sweep the land. We are awash in lies and misleading propaganda.