Economy

What President Obama didn't say about the economy

Analysis: Expanding opportunity doesn't tackle growing income inequality

January 29, 2014 5:30AM ET

by David Dayen @ddayen

The words 'full employment' were nowhere to be found in the State of the Union

Melina Mara/The Washington Post/Getty

President Obama’s State of the Union Address was billed as a disquisition on income inequality, and the Administration’s new willingness to go around Congress to build broad-based prosperity for all. But as in a prior speech on inequality in December, this more high-profile effort failed to spell out the reasons for the decline in economic mobility and increasing disparities in wealth, resulting in a discussion of policies and priorities insufficient to the scale of the problem and the broad goals he proclaimed.

Before the address, the White House had telegraphed a soft sell on inequality by framing it as about creating “ladders of opportunity,” as if the main reason for wealth disparity is a lack of quality education or the proper skills to compete in a global economy. This simply isn’t the case. Real median earnings have fallen for American workers for four straight years and stagnated for decades, even as productivity has risen.

Compensation as a share of national income is at a 50-year low, while corporate profits near record highs. And more and more Americans have dropped out of the labor force entirely, while highly educated workers take low-wage jobs out of desperation. This generational trend cannot be explained away simply by education or skills; in fact, many would view it as insulting to claim that workers are simply too poorly educated to compete for the jobs of the future. Moreover, education and skills-training are long-term initiatives that don't address the near-term crisis of stagnant wages and low labor force participation.

The slack labor market is a major contributor to the problem of inequality; workers' would obviously have far greater bargaining power if the U.S. economy returned to full employment. (Obama did not mention full employment in the speech). But it’s clear that the main driver of inequality is power. An imbalance of power in favor of wealthy interests have restricted American workers' ability to share in the fruits of their increased productivity by impairing their ability to band together for their economic advantage. Meanwhile, more and more of the economy has become tied up in financial services, which generates unsustainable risks for the entire system.

Inequality hasn't grown as a result of inertia or omission; it's the consequence of decisions and policies promoted in the political system by corporate and banking interests that have driven down wages and increased corporate profits, concentrating the wealth being produced in America in what Occupy activists called the 1 percent. As AFL-CIO Policy Director Damon Silvers puts it, “People with power in America made decisions that led to this result.”

There was nothing obvious in the State of the Union address that would seriously disrupt the pattern of inequality decried by President Obama. Raising the minimum wage for federal contract workers will help, though it will only apply to future contracts. (Obama did endorse the call for higher minimum wage for everyone, which would make a more substantial difference, according to economists.) The other big unilateral action Obama announced to help workers, the “myRA,” underscores the administration's limited policy response to what the President called “the defining project of our generation.”

Inequality hasn't grown as a result of inertia or omission; it's the consequence of decisions and policies promoted in the political system by corporate and banking interests.

Click for more on the president's annual policy speech

According to a White House fact sheet, the “myRA” will allow workers to get a “simple, safe and affordable ‘starter’ retirement account through their employers. President Obama described it as “a new savings bond” with no risk of loss. Guaranteed Treasury savings bonds, of course, are available at any bank. Perhaps the employer-based account adds a little convenience, but the difficulty of workers saving for retirement has nothing to do with account options; it has to do with a lack of wages to build savings in the first place. Many Democrats have promoted the idea of expanding Social Security to restore a retirement system damaged by the shift from defined-benefit pensions to defined-contribution 401(k)-style plans. But the President seeks a solution merely in a different kind of defined-contribution account.

Other proposals, like a summit on working families, or a government-wide review of worker training programs, or a vague pledge by corporations to consider hiring the long-term unemployed, were too ephemeral and nonbinding to suggest they would have much impact. And there was little reference in the speech the power imbalance in the economy between the corporate interests who have captured all of the post-recession economic gains, and the majority of working Americans.

For instance, there was exactly one reference to “Wall Street” in the speech, and it was tossed into an exhortation for gender pay equity. While that’s an important goal in its own right, Wall Street, which has been a significant driver of income inequality, was largely bypassed in an address billed as an all-out attack on inequality. This despite continued lawlessness in the financial sector, massive compensation increases for CEOs like JPMorgan Chase’s Jamie Dimon, and a continued lack of prosecutions of anyone responsible for the financial crisis (the vaunted task force to look into big bank malfeasance, announced at a State of the Union address two years ago, has yielded no criminal charges to date). In fact, the only financial-related policy in the speech was a call to pass a housing bill that would wind down mortgage giants Fannie Mae and Freddie Mac, returning to the very system of privately issued mortgage-backed securities that led to the 2008 financial crisis.

The President is constrained by a gridlocked Congress from legislative action to reduce inequality. But although he vowed to bypass Congress for the benefit of ordinary Americans, he did not make full use of the options available. Economists and policy analysts have suggested that he could, for example, extend the minimum wage increase to existing contracts not only future ones. He could urge the Postmaster General to allow postal banking, bolstering the finances one of the biggest job creators in the country while saving billions for Americans underserved by the financial industry. He could ensure that federal contractors do not rip off their own workers by adopting “high-road” contracting.

And while speeches aren't enough to solve problems, President Obama didn't address the underlying causes of inequality, and make the case that a more more equitable distribution of income would fuel growth in America's economy, to the benefit of all. Historically, American workers improved their living standards through building strong unions that gave them leverage. And as a presidential candidate in 2008, Obama had counseled that “change begins from the bottom up.” There was little in his State of the Union address, however, that made clear to ordinary working Americans what they could do "from the bottom up" to address the generational problem of inequality.