Pethokoukis, Economics, U.S. Economy

Obama’s big inequality speech: short on facts and vision

Image Credit: linhngo (Flickr) CC

Image Credit: linhngo (Flickr) CC

Extraordinary claims, it’s been said, require extraordinary evidence. And President Obama made quite an assertion in a speech Thursday at the Center for American Progress: “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American dream, our way of life and what we stand for around the globe.”

But Obama wasn’t just giving a warning, he was also teaching a partisan, progressive, left-wing history lesson. As he sees it, these toxic trends have been slowly poisoning the US economy and the American Dream for decades. The pro-market or “neoliberal” turn in the nation’s economic policy — tax cuts, deregulation — that started in the late 1970s was, according the president, a big mistake that made rich people even richer and little else.

But much of Obama’s argument is either dubious, deceptive, or demonstrably false. Let’s start with his “fundamental threat” claim. Is Team Obama aware of a 2009 study by researchers Dan Andrews, Christopher Jencks  and Andrew Leigh that finds “no systematic relationship between top income shares and economic growth” in advanced economies. Actually, more inequality is associated with higher GDP growth, according to the analysis.

Let’s move on. Obama:”Since 1979, when I graduated from high school, our productivity is up by more than 90 percent, but the income of the typical family has increased by less than 8 percent.”

Reality check: Obama grossly overstates the productivity-income gap, and the middle-class stagnation argument is a myth. According to the Congressional Budget Office, for the 60 percent of the population in the middle of the income scale (the 21st through 80th percentiles), the growth in average real after-tax household income — meaning after federal taxes have been deducted and government transfers including Social Security and unemployment insurance have been added – was just under 40% from 1979 through 2007, the end of the last business cycle. The CBO numbers sync well with those of Cornell University’s Richard Burkhauser who finds that mean income growth — also taking into a account a broader measure of income — for the middle 20% rose by 37% from 1979 through 2007. And research by the University of Chicago’s Bruce  Meyer and Notre Dame’s James Sullivan find accounting properly for inflation shows median incomes have gone up by about 50% since 1980.

But there’s so much more. Obama claims that starting in the late 1970s, “businesses lobbied Washington to weaken unions and the value of the minimum wage. As the trickle-down ideology became more prominent, taxes were slashes for the wealthiest while investments in things that make us all richer, like schools and infrastructure, were allowed to wither.”

Really? Union membership as a share of total employed peaked in 1954 not the late 1970s, according to the Cleveland Fed. Most Americans in 2010 — not just the rich — paid far less in total taxes — federal, state and local — than they would have paid 30 years ago, according to an analysis by The New York Times. And a 2011 study by Marco Percoco, a professor at Bocconi University in Italy, shows US. public investment has tracked the OECD average since at least 1970, according to Bloomberg. And when a proper inflation adjustment is used, the current minimum of $7.25 is just a nickel below the average from 1960 to 1980.

But it’s not just inequality. Obama also claims “we’ve seen diminished levels of upward mobility in recent years.” Yet a survey of the economic literature by inequality researcher Scott Winship of the Manhattan Institute finds, “Most of the evidence on earnings and income mobility suggests only small changes over recent decades.”

Here’s the bottom line: America’s pro-market turn some three decades ago reversed what then seemed like unstoppable national decline. (Nations that didn’t make that choice, such as Japan and France, have not fared well.) Yes the rich got a lot richer, mostly due to technology and globalization. But the middle-class did pretty well, also. Pre-tax incomes at the bottom end suffered, but the safety net has helped a lot. Inequality has likely increased sharply at the very high end, but has been stable elsewhere along the income distribution spectrum. Mobility could be better, but the big problem is really upward mobility from the very bottom. And America remains the world’s innovation leader.

Obama’s revisionist history and one-sided, black-and-white economic analysis may please his dispirited base, but they won’t help America make the right decisions going going forward about how to boost growth and ensure those economic gains are as broadly shared as possible. Obama makes inequality and mobility just seem like convenient excuses to raise taxes and expand government. By placing those issues within a harshly partisan, left-liberal, progressive framework he makes it harder for right-of-center folks who worry about, say, the effect of automation on the US labor force, to engage in a much-needed policy debate.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

25 thoughts on “Obama’s big inequality speech: short on facts and vision

  1. Fact’s do not enter into Obama’s view of the world. He only speaks in broad pejoratives and little else – a vacuous dummy mimicking the hand motions of his handlers.

  2. America’s pro-market turn some three decades ago reversed what then seemed like unstoppable national decline

    That is not supportable in the broadest sense. Take the midpoint of the 1945-2013 period. Hasn’t GDP per capita been lower in the 1980-2013 period than in the 1945-1979 period?

    • There is a tiny confounding variable you are overlooking. 1945-1979 contained the post WW2 economic boom years. Every major industrial center in the world outside of North America had been destroyed and took many years to recover. The US/Canada was essentially the only gig in town and we reaped considerable benefits in economic growth.

        • Right, 15 years post war recovering economies are picking up speed and US growth rate is not as dynamic. You indexed to that time period (’60-’80) showing growth in real gdp per capita over that period which fails to articulate the lead the US had in actual value of GDP per capita. Now show me a graph with real gdp per capita from the next 20 year period indexed to January 1st, 1980. Venture a guess which of the two periods is going to contain greater US growth rate? Which of the three nations will have experienced the greater growth from 1980-2000?

          • Right, 15 years post war recovering economies are picking up speed and US growth rate is not as dynamic.

            There is more rapid growth rate convergence from 1945-1960 than 1960-1980 in the ruined economies, so what? And what does it have to do with the decline in U.S. per capita growth rates post-1980? You are going far afield. Jimmy P’s bottom line is bull.

            The linked FRED graph is interactive. Plug and play! Add in Japan for good measure.

            Venture a guess which of the two periods is going to contain greater US growth rate?

            1960-1980

          • Ok, I’m going to use your new time period to compare US to French per capita GDP. In 1960, French GDP per capita was ~64% of US GDP per capita. In 1980 it had risen to ~82% of US GDP per capita. Clearly outgrowing the US during that time period.

            The US decided to embrace “pro-market” policies in the late 70′s, France did not. Today French GDP is down to ~73% of US GDP per capita. If his bottom line is bull, please reconcile this for me.

          • U.S. per capita GDP was cumulatively 8.3 percentage points (~40 basis points per year) higher in the 1960-1980 period than in the 1980-2000 period. “[R]evers[ing] what then seemed like unstoppable national decline” is just rhetorical bull.

            please reconcile this for me. Please reconcile Japan which went from 66% to 71%.

          • Japan’s economic stagnation has contributed to it’s falling birthrate and aging population. It will be facing labor shortages within the next generation. This reality means Japan’s PER CAPITA GDP is masking ground lost in TOTAL GDP. Numbers which you have failed to provide.

            There is my response for Japan. I am still waiting for your reply regarding France.

          • France’s employment percentage has decreased over that time period while the US’s has increased. The US has added marginal workers to the labor force who have decreased productivity, and still outpacing France on per capita GDP.

            To clarify, your position is that in the 32 years from 1979-2011, the French culture collectively decided to emphasize leisure to the extent that they decreased working hours by 18.2% (1804 down to 1476) over that ~30 year time period? And that this decrease is due to valuing leisure and not factor’s such as France’s high unemployment rate, earlier retirement age, etc?

          • Yes, and Germany, Spain, Italy, Netherlands and even the “Thatcherite” U.K. Germany moved from 81% to 91% output per hour relative to the U.S.

            Get over your U.S. centricity. There are many Americans, like Jimmy P, who “snooze” at their desks dreaming about their leisure time. Workers in other countries just do it.

            I still wait with baited breath for an intelligent response to the fundamental “unstoppable national decline” bottom line bull.

            For every right wing think tank, there is a left wing think tank. Neither is dispositive.

          • Wow you are all over the place. It helps when you keep moving the goal post and switching nations/time periods/etc. every single post to avoid getting pinned down on your inaccurate theories.

            How healthy are the economies of Spain and Italy right now? You think a 10% relative increase in productivity level is worth 20% unemployment? That certainly is a lot of leisure time. Enjoy a full time siesta!

            What about the continual decrease in German’s gross fixed investment? Or the fact that their 25-34 age group has fewer higher education qualifications than the preceding generation, virtually unheard of in a modern (healthy) economy? Time marches on as they say…

            There is a reason the term is “eurosclerosis” not “francosclerosis”. Productivity per worker might have increased relative to US, but the fact remains that the eurozone as a whole suffers from high unemployment (fewer workers), lower birthrate (fewer future workers), an aging workforce (hence higher productivity), lower per captia gdp, and lower median income under policies the US avoided.

        • John, in the debate (?) which follows between you and marmico, you have confirmed my assertion that arguing with a fool proves nothing. I declare you winner by reason of logic, factual evidence and wit.

  3. Mr. P critiques “Obama’s revisionist history and one sided, black-and-white partisan analysis.”

    Short version: Contradicts Mr P’s revisionist history and one sided, black-and-white partisan analysis.

  4. Who cares what he has to say? This is all misdirection. The Obamacare meltdown is the real story. This is just noise. When the Right starts talking about inequality in response to a speech he gives, we’re falling right into his hands. Don’t take the bait. Keep up the heat on the OBAMAcare fiasco.

  5. To address the inequality, we have to learn the proximate cause of it. Otherwise, any “remedy” will be a forlorn hope. I doubt that the man has the intellectual honesty to follow facts where they lead. Demagoguery is more his line. So, if he gets his way it will be more of the same, and greater inequality still. With the blame heaped upon the “free market.”

    • Hope And Change

      Mr. Obama promised “hope and change”. His hope was to have changed America by the end of his time as President. The change was the end of European-White, Christian America as it was founded and prospered. Personal criticisms of him notwithstanding, he is realizing his hope; the change has begun (www.nationonfire.com).

  6. Decreasing mobility is because of the eze of the cars. I grew up with see the USA in your Chevrolet, who wants to do that in a volt or a smart car.

  7. The whole point of “income inequality” is to use the term as a rhetorical device to bring in scapegoatism, envy and class warfare without more overtly embracing these ideas. It’s a scam. He wants his low information supporters to point fingers and blame others rather than look squarely at his failed policies. Unemployment isn’t caused by some guy starting a software company and making billions. Runaway taxes and federal spending aren’t caused by that either. They are however a reflection of the president’s policy choices. So having failed economically, the president needs a distraction. That’s what “income inequality is. The issue should not be if someone has more than I do. Rather it has to be if I am better off and can achieve a decent standard of living. And we know the general answer to that question under this administration. What does the “big house on the hill” have to do with my life and my economic well-being? But that’s what Obama wants, for you to blame your unemployment, your high taxes, your personal debt on the shadowy figures in the big house on the hill. It’s dishonest and irresponsible. Standard practice for the blame everyone but me president.

  8. Freedom Or Equality

    “For freedom and equality are sworn and everlasting enemies, and when one prevails the other dies.” – Will Durant (1885-1981)

    Obama’s criticism is correct concerning the current state of economic inequality in America. His solutions are incorrect.

    The independent variables generating political, economic, and social behaviors the consequence of which is a counter-productive level of economic inequality are not singular but multiple. No single-minded plan, such as raising the problematic minimal wage, will resolve the situation-in-question. Only a comprehensive approach scientifically-based and scientifically-driven can fulfill goals agreeable to most rational, well-intentioned people. Fortunately, such an approach already is available (www.inescapableconsequences.com).

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>