The president who was going to keep the focus on Obamacare yesterday digressed to give a base-pleasing, shopworn liberal ode to fighting income inequality. Don’t worry if you missed it. There was nothing new. Raise minimum wage! Extend unemployment benefits! More government spending! My goodness — it’s as if he has slept through the last 40 years of public policy research and economic experience.
There were at least 10 things wrong with the speech – aside from the fact that President Obama speaks as if a bad-apple president pursuing some right-wing agenda had been in the Oval Office for 5 years (in two of which he had a Democratic House and Senate):
1. If lifting the sequester — which he now uses to credit himself with debt reduction — and spending more taxpayer money would lead to lessened income inequality, then we’d have solved the problem. In fact, as we’ve spent more, income inequality has increased.
2. One way to lessen income inequality would be to stop transferring wealth from young to old. In other words, we need to tackle entitlement reform. Obama cohorts such as Sen. Elizabeth Warren (D-Mass.) will have none of this (they want to raise benefits), so maybe the problem is partially his own party, which clings to entitlements that disproportionately help the rich and middle class. He says government can’t completely solve income inequality; what he doesn’t say is that it has been increasing it through bad policy choices.
3. He might reconsider his education policy. Katrina Trinko writes:
If the lack of a decent education available to low-income children truly offended him, Obama would support vouchers. No, vouchers aren’t some cure-all panacea that will result in every child becoming a straight-A dynamo student who achieves excellence at college or in a technical school post high school graduation. But they can help. . . . Yet, instead of embracing them, the Obama administration has been notoriously opposed to vouchers. The Department of Justice filed a lawsuit against Louisiana’s new voucher program in August, although it has since abandoned the suit. And in D.C. – where the specific program has definite graduation gains! – Obama’s administration has relentlessly worked against the voucher program, even after making a deal with Speaker John Boehner in 2012 to keep the program funded.
4. Obama is pushing around scraps of relief (unemployment benefits) as substitutes for dealing with the underlying drivers of income inequality, including family erosion, high school drop-out rates, the marriage crisis, globalization and the primacy of knowledge-based economies, high incarceration rates among inner-city men and “mate selection” (rich, well-educated people tend to marry other such people, maximizing wealth in high-income households). He lists some of these phenomena, but his solutions — trite liberal income distribution — don’t match the causes.
5. His claim that “slashing” taxes for the rich promoted income inequality is largely false, although gambits like state lotteries and sin taxes favored by Democrats do fall disproportionately on the poor. Coincidentally, yesterday the Congressional Budget Office released its periodic report on taxes paid by income group: “Higher-income households pay much more in federal taxes than do their lower-income counterparts: They have a much greater share of the nation’s before-tax income, and they pay a much larger proportion of that income in taxes. Households in the top quintile (including the top percentile) paid 68.8 percent of all federal taxes, households in the middle quintile paid 9.1 percent, and those in the bottom quintile paid 0.4 percent of federal taxes.” His predecessor, whom he blames for most everything, took millions off the federal tax rolls.
6. Obama is deeply insincere when he declares that “if you’re a progressive and you want to help the middle class and the working poor, you’ve still got to be concerned about competitiveness and productivity and business confidence that spurs private sector investment.” If that were the case, he’d have reformed the corporate tax code already (he said we should do it), rethought regulatory policy and set out to develop domestic energy. He touts the benefits of trade but has not completed a single free-trade agreement in five years.
7. Another source of income inequality is cronyism, for example rewarding politically connected people and businesses with lucrative grants and loans for questionable business deals. No mention was made, needless to say, of Solyndra.
8. Obamacare is not helping; if anything it is moving us in the wrong direction. Millions more have lost insurance than have gained it. Many workers at the bottom rungs have been cut back to part-time status. The medical-device tax hits some of our most innovative employers while pushing up the cost of health-care equipment, regardless of the patient’s income. None of this lessens income inequality.
9. Raising the minimum wage is not the way to go, and there are mounds of data to prove it. Jim Pethokoukis at the American Enterprise Institute reviews some of the research on the topic. (“These studies aren’t some secret. So why do so many smart people keep advocating for a higher minimum wage? The best answer I can come up with is that they think it is more politically likely than the better economic answer: wage subsidies.”) Moreover, the Wall Street Journal editorial board explains:
Economist David Neumark, an expert on minimum-wage economic studies, says that an economic rule-of-thumb is that every 10% increase in the minimum wage reduces teen employment by about 1% to 3%. In October the U.S. teen jobless rate was 22.2% and for black teens it was 36%. The Obama minimum wage combined with the health mandate could mean up to a 10% reduction in jobs for the poor and young. Liberals must care deeply about inequality because their policies do so much to increase it.
10. Why did he let the payroll tax break expire? If you wanted to put cash in the pockets of weekly wage-earners, that would have been a place to start.
The tragedy is that there are any number of things suggested by conservatives like Rep. Paul Ryan (R-Wis.) and Sen. Mike Lee (R-Utah) that might work a whole lot better than what Obama’s suggesting. But when you describe your policies as based on nothing but “kindness,” that requires you to cast ideological opponents as unkind. Maybe kindness should be judged at least in part on result. If so, this is one of the unkindest administrations since the Great Depression.