And there are two other mechanisms through which inequality might have precipitated the crisis:
- Insofar as rising inequality in the 00s was correlated with a rise in wages in the financial sector relative to other industries, it attracted “talent” into banking. And this contributed to its downfall, because “talent” produces not stability but rent-seeking and overconfidence. Remember - banks survived for decades by employing doddering Captain Mainwarings but collapsed soon after hiring physics PhDs.
- One contributor to bank collapses was inequality of power. Top-down management structures produce bosses who combine domineering arrogance with ignorance. As Julian Birkinshaw has said (pdf), the management model in investment banks was one in which “Aggressive and intimidating behaviour is tolerated; effective teamwork and sharing of ideas are rare.”
This reminds me of something...