Pivot or Divot? On one level, President Obama achieved admirable transparency in his recent Knox College address. He succinctly described most of the forces that have helped increase income inequality over the past three decades, primarily trade (many unskilled jobs are now performed overseas) and technology (which arguably increases the value of both education and “star” job performance). That these trends were obvious over a decade ago, when Bill Clinton was running for office–or that Obama himself has talked about them for years–doesn’t make them less real. They provide the context of contemporary politics.
On another level, the speech was stunningly dishonest … OK, maybe that’s harsh. Put it this way–it exposed some big disconnects. At least four of them, actually. Here they are, in order of increasing significance:
Disconnect 1: Between what Obama says he’s doing and what he’s been doing.
“Washington’s taken its eye off the ball. And I’m here to say this needs to stop. … Our focus has to be on the basic economic issues that the matter most to you — the people we represent. (Applause.) That’s what we have to spend our time on and our energy on and our focus on.
… [R]educing poverty, reducing inequality, growing opportunity. That’s what we need. (Cheers, applause.) That’s what we need. That’s what we need right now. (Cheers, applause.)
That’s what we need to be focused on.” [E.A.]
You would almost think it was Republicans who had spent the past few months focusing on first, gun control and second, immigration–two topics Obama himself classifies as “other key priorities,” not “basic economic issues.” Shorter Obama: ‘Washington must stop being distracted by the off-point initiatives that I and my staff have been pushing.’
Disconnect 2: Between what Obama says he wants to do and what his organizing arm, OFA, is doing.
“Reversing these trends [to “growing inequality”] has to be Washington’s highest priority. It’s certainly my highest priority.”
But it’s not the highest priority of Organizing for America, the potentially transformative, slightly Chavez-y extra-party grassroots lobbying group Obama established after the 2012 campaign. As Daily Caller‘s Patrick Howley reports, OFA will spend August promoting an agenda of
Obamacare (August 4), immigration reform (August 5), climate change (August 13), gun control (August 21), and immigration reform again (August 31).
Of these, only the first is arguably one of the “cornerstones of what it means to be middle-class in America” that are Obama’s “highest priority.” ….
Disconnect 3: Between what Obama says the problem is and the policies he pushes to cure it. The trends toward income inequality are the results of tectonic global shifts in capitalism. It’s not easy to figure out what actual government policies might “reverse” them–kind of like trying to “reverse” an earthquake. I don’t think even a) Swedish-level effective tax rates at the top, b) a shocking revival of unionism and c) a massively subsidized retraining program would do the job. (When I looked at this in 1992, for example, it would have taken an effective tax rate of somewhere around 57 % on the top one percent to get their share of after tax income back to where it was in 1977. The rich have only gotten richer since then, while the effective federal tax rate on the top 1%, even after Obama’s recent hike, is only around 36%.)
But Obama isn’t going to out-Sweden Sweden on taxes, and unionism isn’t going to surge back..
What’s certain, instead, is that nothing the President is currently promoting comes even close to reversing “the forces that have conspired against the middle class for decades.” Here’s my rough, Umberto-Eco-esque list of the policy prescriptions from Obama’s Knox speech:
Tax changes to encourage manufacturing jobs in the U.S.
“manufacturing innovation institutes”
Universal “high-quality preschool”
Connecting high schools to the internet
“New efforts to train workers”–e.g. in community colleges
“New ways” to lower college costs
Less red tape for “responsible families” denied mortgages by banks
Tax “reform” that “makes it easier for workers to put money away”
“Partnerships” to rebuild “run-down neighborhoods” and “hardest hit towns”
Raising the minimum wage
Do you see any new game-changers? I don’t. Some (“partnerships” “green jobs”) have the familiar wishful smell of doom. All but a few biggies–like Obamacare–seem unlikely to have a non-trivial impact on inequality. That’s especially true if you worry that money disparities are now also the product of divergent affluent and poor cultures and–the great unspoken fear–intergenerational stratification of smarts (including “IQ”).
Disconnect 4: Obama’s biggest domestic policy push would almost certainly make his “highest priority” problem worse. Obama recalls the glory days after World War II when
[w]hether you owned a company or 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 decent benefits, the chance to buy a home, to save for retirement and — and most of all, a chance to hand down a better life for your kids. [E.A.]
Sweeping floors is basic unskilled work. What could help Americans doing this work get a better bargain and “be rewarded with fair wages and decent benefits”? Well, one thing that helped was the tight labor market of the late 90s. Employers had to pay more just to get people to show up. This was “the best period of wage growth at the bottom in the last 30 years,” according the Harvard economist Lawrence Katz. (These were also the best years Black America has had in recent decades.)
Unfortunately, the “immigration reform” bill championed by Obama–the biggest item on his domestic legislative agenda–would make sure this tight labor market never returns. Indeed, that is part of its appeal to business. First, it would legalize 8 million or so previously undocumented immigrants who are now living here but aren’t now free to compete in every field of employment. Second, it would encourage many more foreign workers, mostly unskilled, to cross the border illegally–after all, those that went before were legalized in order to appeal to Latinos, and there will be more Latino voters in 2020 than today. Third it would explicitly expand the legal unskilled immigrant and temporary workforce by several million (increasing by 10 million the number of U.S. residents, excluding the legalized illegals).
Put all these together and you have an unskilled labor pool flooded with newcomers, in which wages for those who sweep floors will predictably fall. Economists heatedly debate whether, overall, unskilled workers might benefit by, say, supervising the work of cheap foreign floor-sweepers. But there’s little debate that the least skilled unskilled workers–e.g. those who remain floor sweepers–will fall further behind. Meanwhile, the profits for those who hire them, who tend to be at the top of the income pile, should be healthy.
Income inequality, in short, will rise. Obama’s “legacy’ achievement would make the trend he wants to “reverse” worse. Even jobs that can’t be “outsourced” will be subject to newly “insourced” foreign labor competition. Call it Bringing Globalization Home.
Which brings us to a possible Fifth Disconnect. Does Obama recognize that his initiatives have a weak connection, and even perverse connection, with actually achieving his goal? I hope his biographer, Jonathan Alter, will tell me. But either way, there’s a vacuum between his speechmaking and governing. Is that unusual? After all, Democrats have campaigned for years by arguing that Republican policies benefit the rich–think of all the distributional tables Democrats distributed to fight Reagan’s budgets-without ever saying how much inequality, exactly, they’d be willing to tolerate.
But Obama isn’t vague or incoherent. He’s quite precise about where he wants to go–namely back to something like what we had three decades ago. If his means don’t come close to matching his ends, if they even subvert them, that seems a more troubling, almost pathological mismatch, in which liberalism becomes a sort of cargo cult whose mechanisms have zero hope of achieving the desired results.
[What would you do instead?-ed Stop playing the money equalizing game. Boost wages at the bottom, in part through the simple expedient of having a border. Stop worrying so much about the riches at the top. Focus instead on building the common institutions in which we participate as equals–most obviously by preventing Obamacare from becoming ruthlessly stratified by income like everything else (including baseball games and now theme parks). We can also talk about national service and residential desegregation (by income class) and maybe throwing a wrench or two into the meritocratic centrifuge. More here.]