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Obama, the Great Equalizer, Forgets About Economic Growth

The essence of the Obama presidency and Obamanomics revolves around redistributing wealth and reducing income inequality. Those are the president’s Big Ideas. To him, fixing those problems means fixing what he perceives has gone wrong with America during the past generation.

In Osawatomie, Kansas, last year, Obama said the election, “was about making choices that benefit not just the people who’ve done fantastically well over the last few decades, but that benefit the middle class, and those fighting to get into the middle class, and the economy as a whole.” Obamacare, the Buffett rule, letting the Bush tax hikes expire, raising taxes on corporations — none of that has anything to do with economic growth or job creation. They’re all about the Great Leveling that Obama desires.

And liberals like Obama think the numbers justify their focus on inequality. They point to the much-publicized work of economists Thomas Piketty and Emmanuel Saez. Using IRS data, they find a sharp rise in the share of pre-tax income earned by the top 1%. It roughly doubled over the past thirty years. But there are a number of issues with the Piketty Saez approach. One big one: The study ignores transfer payments such as Social Security, Medicare, food stamps, and other low-income programs.

Another way to gauge standards of living over time is by measuring consumption, since it better tracks the overall economic resources at a person’s command. And unlike income, consumption remains more or less steady throughout life since individuals borrow during years with low income and save in high-income years.

Turns out that the consumption gap across income groups has remained remarkably stable over time. AEI’s Kevin Hassett and Aparna Mathur in the WSJ today:

According to data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, if you sort households according to their pretax income, in 2010 the bottom fifth accounted for 8.7% of overall consumption, the middle fifth for 17.1%, and the top fifth for about 38.6%. Go back 10 years to 2000—before two recessions, the Bush tax cuts, and continuing expansions of globalization and computerization—and the numbers are similar. The bottom fifth accounted for 8.9% of consumption, the middle fifth for 17.3%, and the top fifth for 37.3%.

While this stability is something to applaud, surely more important are the real gains in consumption by income groups over the past decade. From 2000 to 2010, consumption has climbed 14% for individuals in the bottom fifth of households, 6% for individuals in the middle fifth, and 14.3% for individuals in the top fifth when we account for changes in U.S. population and the size of households. This despite the dire economy at the end of the decade.

Hassett and Mathur also have a paper on the subject.

And even if you want to focus on incomes, the picture looks not nearly as dire as Piketty and Saez argue. Work by economist Richard Burkhauser suggests middle class incomes rose 37% from 1979-2007 vs. 53% for the top quintile and 63% for the top 5%. Income inequality increased, but everyone made out pretty well.

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Bottom line: America’s biggest problems are slow economic growth and anemic job creation. That is what Washington should be focused on.

  1. BrentB67

    Progressive ‘truism’: It is easier to drag everybody down to the lowest common denominator than it is to let them work their way to the top on their own.

    I don’t think Washington should be focused on anything except defending the country, immigration, and delivering the mail and so  far they are batting 1/3. 

    Washington, needs to repeal laws/regulations, shut up, and get out of the way. Not focus on anything outside of the Constitution.

  2. Instugator

    The problem with the truism is that even the poor have smartphones – dragging people dow now only drags everyone down… for all intents and purposes, material need has been reduced to the point that it makes no sense to increase spending on it. Proof: LSU researchers have tried to find deaths for which malnutrition was a contributing factor and were only able to find ~3000. Deaths due to infectious disease and correlated to income are statistical noise, especially when one includes the value of transfer payments. For all intents and purposes, looking at material need only, we have achieved a post scarcity society- the problem is that for the left that isn’t enough. They will only be satisfied when outward appearances show equality of outcome.

  3. Peter Meza
    James Pethokoukis

    Bottom line: America’s biggest problems are slow economic growth and anemic job creation. That is what Washington should be focused on. · · 21 minutes ago

    Economic growth and job creation requires liberty and a functioning free market that is not burdened down with regulation.  To the extent that liberals are involved with the government, they will not allow this because it interferes with their egalitarian goals.  I agree with the two above posts.  Liberals would rather have everyone in miserable equality than prosperity, if prosperity means someone will earn $1 more per year than someone else.

  4. ConservativeWanderer
    Peter Meza

    Liberals would rather have everyone in miserable equality than prosperity, if prosperity means someone will earn $1 more per year than someone else. · 45 minutes ago

    Close, but not quite.

    Leftists would rather have everyone except themselves in miserable equality than prosperity.

    They, being the elites, will of course have their caviar and vodka, even as the proletariat stands in bread lines.

  5. Free Radical

    I liked Arthur Brooks’ comment that progressives/liberals policies pull the ladder up behind them because diminished economic growth, caused by their policies, prevents movement up the income scale for the poor.

  6. Steve MacDonald

    The amazing thing to me is, that we have a competitive advantage in cheap and abundant natural gas, that could fuel world beating growth for a generation. If one were serious about clean, dynamic growth, this would be a no brainer to get behind. Rather than throwing billions to cronies on technology that will never work commercially, a few sheckles to Thorium might actually do some good.

    Rather than doing something constructive to actually make the pie bigger – Mr. O & Co. seem to be using the Detroit model of holding on to power and riding the golden goose to oblivion.