Economics, Pethokoukis, U.S. Economy

Why does Obama think income inequality is a bigger problem than unemployment?


President Obama’s big economic speech at Knox College in Galesburg, Illinois, was light on fresh, innovative policy proposals. Such is a second presidential term, especially in today’s dysfunctional Washington. But if Obama wasn’t going to offer lots of good, new ideas, at least he could have avoided repeating some bad, old ideas.

Unfortunately, the progressive president couldn’t help himself. And here’s the worst of them: the only thing America got for its pro-market shift 30 years ago — from deregulation to tax cuts to free trade — was more income inequality and less income mobility. Well, that and the Great Recession and Financial Crisis. Obama the economic historian:

In the period after World War II, a growing middle class was the engine of our prosperity.  Whether you owned a company, swept its floors, or worked anywhere in between, this country offered you a basic bargain – a sense that your hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement, and, above all, to hand down a better life for your kids.

But over time, that engine began to stall.  That bargain began to fray.  Technology made some jobs obsolete.  Global competition sent others overseas.  It became harder for unions to fight for the middle class. Washington doled out bigger tax cuts to the rich and smaller minimum wage increases for the working poor. The link between higher productivity and people’s wages and salaries was severed – the income of the top 1% nearly quadrupled from 1979 to 2007, while the typical family’s barely budged.

Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up.  But by the time I took office in 2009, the bubble had burst, costing millions of Americans their jobs, their homes, and their savings. The decades-long erosion of middle-class security was laid bare for all to see and feel.

Time for a fact check.

1. It’s tough to draw policy lessons for today from the immediate post-World War II decades. Would a return to strong labor unions and high marginal tax rates really accomplish Obama’s goal of “shared prosperity” and more equality? The 1950s and 1960s were affected by a host of one-off factors: (a) America’s competitors were recovering from WWII, (b) the US labor force was constrained by the 1930s baby bust and war casualties, boosting wages, (c) wages also experienced a catch-up period to productivity after lagging prewar. We’re not going back to the future.

2. Obama is flat-out wrong that median family incomes were flat between 1979 and 2007. Analysis from the Congressional Budget Office, economist Richard Burkhauser, and economists Bruce Meyer and James Sullivan suggests median household incomes actually grew more like 40%. Overall, the median household in the US is twice as rich as it was at the peak of Obama’s postwar golden age.

3. Obama is very worried about income inequality: “This growing inequality isn’t just morally wrong; it’s bad economics.” But high-end inequality — which has grown a lot — has not led to income stagnation, as Obama suggests. And it also seems doubtful that inequality is reducing income mobility much, if at all. For instance: Brookings’ Scott Winship finds that men born in the early 1980s have experienced, at most, “only a bit less mobility” than those born in the 1950s.

Income mobility is an legitimate issue, and Obama is certainly correct in emphasizing it. Research from Winship and others at Brookings shows that a child starting out in the bottom 20% of incomes has only a one-in-three chance of being solidly middle class (escaping the bottom two-fifths) as an adult and only a 17% chance of ending up in the upper middle class. But the Reagan tax cuts aren’t to blame here.

What Obama didn’t talk enough about was how to boost economic growth (beyond spending more on infrastructure) to boost incomes and unemployment. A new report from Capitol Economics warns that the economy’s potential growth rate is probably now only slightly above 2%. To get back to just the postwar GDP trend of 3%, we need more workers and more innovation. And a reminder: We are still some 10 million jobs short of what we would need to return to the prerecession employment trend, while the unemployment rate, adjusted for the drop in labor force participation, is closer to 10% than 7%. But Obama mentioned “unemployment” just once.

Want to boost the middle class, Mr. President? Help them get a job and a raise.

10 thoughts on “Why does Obama think income inequality is a bigger problem than unemployment?

  1. Germany, japan, china WERE nothing/slash destroyed.

    welcome to the false argument of the super middle class (that liberals preach they created) that ignore the obvious……..NO COMPETITION.

    and if you don’t believe that then think of GERMANY’s COMPARATIVE ADVANTAGE in selling more high end cars.

    what is their population? what is our population? market ratios. Doesn’t mean Americans shouldn’t buy German cars……..that’s not the point here. The point is that the 50′s and 60′s liberal argument is a bad joke.

  2. “Why does Obama think income inequality is a bigger problem than unemployment?”

    actually in principle he can’t. But once you understand a policy of propaganda and power mongering you then understand the tax this give to your future voters and keep them on the teet racket.

    “green energy” is quite literally “green” ideological energy. …………’s that thing that they openly tell you, while snickering behind closed doors.

    “green” (party) “energy”…………they can never escape their symbolism……………….NEVER…….

    • The only green he really sees are the wasted dollars & higher elec. bills he PROMISED!( guess that means folks my ideology or else).$$$$$$$!+IRS+NSA+GREEN=OBAMA POWER

  3. “GREEN FOR ALL!”…………..

    hello, what do folks think that means once, as you watch van jones over and over speak, realize he never speaks directly to the technologies of “green energy”?

    “green” is merely the new red. As usual, the left tramples a good idea in order to control people.

  4. Federal income tax slashing (JFK, R Reagan), later slashing of capital gains (Clinton) led to citizen gains and even more money for govt coffers.
    Obama helped to cause the housing collapse, when, as a community agitator, he was one of the lawyers for ACORN who sued Citibank to give subprime loans (Buycks-Roberson vs Citibank, Chicago). HE caused the bubble, which burst.
    Then there is the perception to those of us who have worked so hard that Obama didn’t earn anything, didn’t do anything the “right way.” Cocaine and marijuana in high school, living in a foreign student dorm at Occidental, questionable transfer to an Ivy League college (Columbia) despite no evidence of academic excellence, admission to the then highly affirmative action Harvard Law School despite no evidence from Columbia that his grades would have warranted it, popularity contest election as editor of Harvard Law Review, loss of his law license (why?), $300 M in undisclosed contributions in the 2008 campaign, etc.
    He continues to lie and is not called on it by the press (note his glowing remarks about Detroit last year). And I don’t think I can recall his front man (Jay Carney) ever uttering a truthful sentence.
    Then there are all the actions Obama has done to harm Americans and fail to serve as President: failure to reopen the Gulf for drilling, blocking the Keystone pipeline, failure to protect the Arizona border, cutting off the DC charter school program while sending his own daughters to an expensive private school, aiding Muslims to take over Egypt,hanging Stevens out to dry in Benghazi, attacking opponents using the IRS, spending $1.4 Billion on personal and family trips a year at our expense. Any reason we should ever believe or support him?

  5. Why does Oblunder think that?

    Because neither he nor his advisers know jack shit about economics.

    Oblunder’s policies are exacerbating the inequality problem, particularly the inequality between people with jobs, and those without them. Lack of income tends to contribute to income inequality.

  6. To answer the headline question, Obama hasn’t the slightest clue (or inclination if he has a clue) how to foster the economic growth that would increase average American incomes. Ergo, he focuses on trying to move chips around the table — one thing he can affect.

  7. To be blunt about all this, Ayn Rand’s advice through John Galt in Atlas Shrugged is the best: “Get out of my way.” We will return to robust economic growth when Obama and his ivory tower geniuses leave the field to millions of unencumbered Americans to do what they do best–look out for themselves. Contrary to Obama’s mantra, Americans do NOT do best when they work together; they do best when they strive as individuals to succeed.

  8. Income inequality = crony capitalism

    We’ve got Mugabe on the Potomac.

    This is to be expected when the government is engaged in massive money-printing. Those first to touch the newly minted fiats (Wall Street and the dependent class) are exalted. The vast bulk of the population slides back into penury.

    Debasement of the currency is a tax on liquid capital/ savings.

    Extremely common overseas, it’s finally jumped the pond and become an American (progressive) tax.

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