Yesterday, the President gave a speech in which he demanded that Congress raise taxes on millionaires, as a way to somewhat recalibrate the nation’s wealth distribution. His advisors, like Gene Sperling, are giving speeches talking about the need for manufacturing. A common question in DC is whether this populist pose will help him win the election. Perhaps it will. Perhaps not. Romney is a weak candidate, cartoonishly wealthy and from what I’ve seen, pretty inept. But on policy, there’s a more interesting question.
A better puzzle to wrestle with is why President Obama is able to continue to speak as if his administration has not presided over a significant expansion of income redistribution upward. The data on inequality shows that his policies are not incrementally better than those of his predecessor, or that we’re making progress too slowly, as liberal Democrats like to argue. It doesn’t even show that the outcome is the same as Bush’s. No, look at this table, from Emmanuel Saez (h/t Ian Welsh). Check out those two red circles I added.
Yup, under Bush, the 1% captured a disproportionate share of the income gains from the Bush boom of 2002-2007. They got 65 cents of every dollar created in that boom, up 20 cents from when Clinton was President. Under Obama, the 1% got 93 cents of every dollar created in that boom. That’s not only more than under Bush, up 28 cents. In the transition from Bush to Obama, inequality got worse, faster, than under the transition from Clinton to Bush. Obama accelerated the growth of inequality.
The data set is excellent, it’s from the IRS and it’s extremely detailed. This yawing gap of inequality isn’t an accident, and it’s not just because of Republicans. It’s a set of policy choices, as Saez makes clear in his paper.
Looking further ahead, based on the US historical record, falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration until the 1970s.
Income concentrations are relatively rare, but when they happen, sharp policy moves can retain a strong measure of equality. It’s well-known at this point that President Obama did not want to make such moves. TARP, cramdown, and the foreclosure fraud settlement suggest that his interests lie in preserving the capital structure of the large banks. What about other policy priorities?
Despite his recent speech, President Obama knows that his income tax proposal is going nowhere. So let’s look at three recent policy choices that are going somewhere.
1) President Obama is on the verge of approving a Free Trade deal with Colombia, despite the murder of union organizers in that country. Not content with establishing similar deals with Panama (which has to do with enlarging tax havens) and South Korea, the administration is now embarking on a much vaster Trans-Pacific Partnership deal with countries all over Asia. And it’s being negotiated entirely in secret, with corporate and government officials the only ones allow to be in the room. Trade is a significant driver of lower wages.
2) President Obama just pushed for and signed the JOBS Act, which is a substantial relaxation of regulations and accounting requirements on corporations seeking to go public. Bill Black has many four letter words to describe this bill, but it’s basically a license for Wall Street to commit fraud in the equity markets. The SEC is beginning to promulgate instructions on how this will work.
3) President Obama just refused to issue an executive order forcing campaign spending disclosure by government contractors. President Obama actually criticized the Supreme Court’s decision in Citizens United at a State of the Union address, but as with yesterday’s speech on raising taxes on millionaires, there was actually no there there.
There are many other policy fights, and the President has engaged constructively in some areas and negatively in others. He has been undermined as well as aided by his staff. And he’s just one man, heading up a franchise of thousands of other political actors. It’s been clear, though, since before he took office, that his is a consistent policy architecture on the core questions of power and wealth. In the orbit of this President, power and wealth flow upward.
It’s important not to overstate the conclusion. It’s not obvious that Obama’s policy framework is worse than Bush’s, only that the outcome is. After all, the losses suffered by the wealthy during 2007-2009 recession were less severe than those it suffered in the 2000-2002 recession, and most of the Great Recession happened under Bush (with a Democratic Congress). It’s possible that the Obama policy framework is a bit less bad, but he has been more successful at implementation because unlike Bush, he han’t face any pressure from Democrats. In other words, perhaps Obama’s policy thrust has just been implemented more fully, because the traditional opposition to plutocratic rule, the left, has been silenced. Perhaps it’s a competence issue. Or maybe you can chalk it all up to structural factors, though I suspect the JOBS Act and trade deals imply otherwise. Maybe he really is as conservative as these policy choices suggest. It’s hard to say.
Mitt Romney might be easy to jeer at for his wealth and arrogance, but Saez’s data suggests that Barack Obama is just as much the candidate of inequality.