Obama’s small steps won’t fix inequality

By Helaine Olen
January 30, 2014

President Barack Obama is taking on the challenge of increasing the United States’ all but stagnant economic mobility.

He wants, he said in Tuesday’s State of the Union Address, to both “strengthen the middle class” and “build new ladders of opportunity” into it. His modest plan — modest so that it does not need the congressional approval he’s unlikely to receive — includes raising the minimum wage for federal contract workers and offering workers a new workplace retirement savings account option.

It’s a nice start. But nowhere near enough.

The United States’ sluggish economic mobility is not new. According to a paper recently published by academics at Harvard University and the University of California, Berkeley, it has been mediocre for those born in the 1970s, and it is just as bad for those born 20 years later.

So what’s different now? Two things. First, the fast-growing rate of income inequality has left the rungs on the mobility ladder further apart than ever before. The top 1 percent of earners, as Paul Krugman recently noted, saw their incomes increase by 182 percent between 1979 and 2012. The next 4 percent saw a gain of just under 52 percent.

The ever greater amounts of money earned by the highest tier allows them to buy privileges that all but ensure their children can remain at the top. Upper-income families inhabit a world where private schools charge annual tuition totaling only a few thousand dollars less than the median household income, and pricy tutors, extracurricular activities and private college counselors ensure their children will retain their privileged status. Even the best and most exclusive suburban public high schools can’t offer these advantages.

Yet the era of easy credit and the real estate bubble of the aughts shaded this reality for years — effectively allowing people to temporarily borrow their way out of America’s inequality and mobility problems. Your salary might not be keeping up, but if you used your home equity from the house you bought with 5 percent down, you could purchase the same $10,000 sub-zero refrigerator as anyone else.

When the housing bubble and resulting credit explosion collapsed, the truth about our unequal economy could no longer be denied. Numbers came fast and furious. According to Emmanuel Saez at the University of California, Berkeley, 95 percent of the income earned by households between 2008 and 2102 went to the top 1 percent.

At the other end of the income spectrum, more and more Americans identify as lower class — something all but unheard of in the home of Horatio Alger.

Pew Research Center has been tracking this — and the results are not pretty. In 2008, 25 percent of those surveyed claimed such economic status. In 2012, it was 32 percent. By 2014, after the Standard and Poor’s 500 had soared by roughly 30 percent in one year, the number identifying as lower class or lower middle class had risen to 40 percent. Almost the same number — 38 percent — told Pew “hard work and determination are no guarantee of success for most people.” Our perception that we were doing well has collapsed in the face of economic reality.

We can see the practical results all around. The part of the Affordable Care Act that prohibits companies from offering better coverage to high-ranking employees, the one supposed to begin at the end of 2010? Still not enforced. More members of Congress are millionaires than not. In San Francisco, the middle-class masses still take public transit, while those lucky or skilled enough to get jobs with Silicon Valley behemoths like Google, get ferried to work on private luxury buses.

For the wealthy, the combination of isolation and privileged affluence leads to an increasing social cluelessness and entitlement. The smallest criticism is viewed as a personal affront — as venture capitalist Tom Perkins revealed when he compared criticism of wealthy people such as himself to the Nazi persecution of the Jews. As Josh Marshall at Talking Points Memo put it:

“There’s a slice of the population, whether it’s the top 1 percent or .01 percent or whatever, that doesn’t just have more stuff and money. The sheer scale of the difference means they live what is simply a qualitatively different kind of existence. That gulf creates estrangement and alienation…”

As for the rest of us? We live with a sense that the fix is in, that there is one set of lenient rules for the plutocracy, and a harsher set for everyone else. That explains the gallows humor about private profits and socialized risk, and the fury average Americans feel when demonized for buying homes they could not afford while the banks and mortgage companies that lent out all that mortgage money have escaped with little more than slap-on-the-wrist fines.

It’s corrosive, this sort of divide. It feeds on itself. People who believe they are permanently destined to look through glass windows at their financial betters are volatile. So too are the people on the other side of the divide — scared that every waspish comment about $4 slices of toast means Robespierre is around the corner.

Bad things can happen in this sort of environment. Obama needs to take it on. If he can’t get Congress to take action, he needs to explain to the American public the consequences of inaction.

Small steps are unlikely to be enough.


PHOTO: At least 20 private jet aircraft sit parked at the Friedman Memorial Airport during the Allen & Co. Media Conference in Sun Valley, Idaho July 13, 2012. REUTERS/Jim Urquhart

PHOTO: A realtor and bank-owned sign is displayed near a house for sale in Phoenix, Arizona, January 4, 2011. REUTERS/Joshua Lott

PHOTO: Saidov Wane and his two-year-old daughter Khady protest against home foreclosures in the East Price Hill neighborhood during a Occupy Cincinnati march in Cincinnati, Ohio, March 24, 2012. REUTERS/John Sommers II



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