Reducing Inequality: America’s Number One Priority?

Last week, President Obama gave a speech on economic mobility and argued that addressing economic inequality was “the defining challenge of our time.” He stated:

But we know that people’s frustrations run deeper than these most recent political battles.  Their frustration is rooted in their own daily battles — to make ends meet, to pay for college, buy a home, save for retirement.  It’s rooted in the nagging sense that no matter how hard they work, the deck is stacked against them.  And it’s rooted in the fear that their kids won’t be better off than they were.  They may not follow the constant back-and-forth in Washington or all the policy details, but they experience in a very personal way the relentless, decades-long trend that I want to spend some time talking about today.  And that is a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead.

President Obama asks (and answers) an important question: “if, in fact, the majority of Americans agree that our number-one priority is to restore opportunity and broad-based growth for all Americans, the question is why has Washington consistently failed to act?  And I think a big reason is the myths that have developed around the issue of inequality.” According to the President, the myths include: (1) “the myth that this is a problem restricted to a small share of predominantly minority poor,” (2) “the myth that growing the economy and reducing inequality are necessarily in conflict,” and (3) “the belief that the government cannot do anything about reducing inequality.” Even if these are correctly seen as myths (the address provides some qualifications) the problem may be found in the premise.

As Charles Lane (Washington Post) observes, Obama’s claim that increasing inequality and decreasing social mobility present “the defining challenge of our time” may prove to be “a tough sell.” This is not because the claims of growing inequality are baseless: There is much evidence that inequality has increased dramatically in recent decades (one can look to the Census Bureau’s trend line for the Gini coefficient, for example, or Emmanuel Saez’s data on changing income distributions). Of course, there are compelling reasons to believe that this has been a product of several factors, including public policy (e.g.,  tax policy), structural changes in the economy (e.g., skill-based technical change, a long-term decline in labor’s share of GDP) and changes in social practices (e.g., assortative mating).  (Brink Lindsey has an interesting essay addressing several of these factors and questioning the assumption that the immediate postwar era was, in fact, a Golden Age.)

The primary political problem is clear: few actually believe that the government’s top priority should be fighting inequality. Lane’s evidence: a Pew Research report. The key finding: while a majority thinks “the gap between the rich and the poor” is a problem (47 percent a “very big problem, 27 percent a “moderately big problem”), this does not translate into policy preferences. When asked what is the most important problem for the government to address, 41 percent cite unemployment, followed by the public debt (28 percent). Addressing the gap between the rich and the poor is viewed as the most important problem by a mere 17 percent. As Lane concludes: “Create jobs, slash debt, then worry about equality. Isn’t that the Republican pitch?”

Admittedly, I need to devote greater reflection to the question of inequality. Some critics argue that the income distribution is largely an emergent property of individual market decisions. Yet, it is clear that public policies often play an important role in providing transfers that exacerbate the levels of inequality that would stem from pure market outcomes (e.g., the majority of the major tax expenditures go to the top quintile).  Moreover, it is never clear to me that the objections to inequality are not really concerns over abject poverty.  Ethiopia and the European Union have comparable Gini coefficients. Any preference?  I often suspect that the concerns over inequality are premised on the assumption that some have so little for a simple reason: because a few have taken so much.

All of this leaves me with a few unanswered questions. Assuming that the administration understands the preference ordering—jobs, debt, and then inequality—why is it emphasizing the problem of inequality as the “defining challenge”?  Does it feel that it can no longer make credible claims with respect to job creation and debt reduction? Does it want to make the argument that the problems of economic performance are, at the most fundamental level, a product of the 1 percent taking more than their fair share?