For the 99%, no recovery at all under Obama
James Pethokoukis writing at the AEI blog has a fascinating post up about income inequality and the recovery from the Great Recession.
Basically, it is true that the 1% have received the lion's share of wealth that has been created for the last 20 years (actually going back to the 1970's). But under Obamanomics, the problem has gotten much worse and this can be seen in the unevenness of the recovery:
Liberal economist Emmanuel Saez produced a study on income inequality that showed the top 1% capturing 93% of the wealth created in the first year of the recovery. The figure was 65% during the Bush administration. James comments:
1. So this isn't exactly an endorsement of the Obama recovery is it? I mean, for 99 percent of Americans there has been no recovery, according to Saez. In other news, Wall Street paid its employees more than $40 billion in bonuses the past two years.
2. Saez embraces and promotes the back-to-the-1950s nostalgia economics of Obamanomics and modern liberalism: "A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II--such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality." Indeed, Saez thinks the top marginal tax rate should more than double to 80 percent.
Economist Daren Acemoglu explains the forces driving inequality much differently and more persuasively: "One is that technology has become even more biased towards more skilled, higher earning workers than before. So, all else being equal, that will tend to increase inequality. Secondly, we've been going through a phase of globalisation. Things such as trading with China--where low-skill labour is much cheaper--are putting pressure on low wages. Third, and possibly most important, is that the U.S. education system has been failing terribly at some level."
But is income inequality avoidable? From a study done by the Federal Reserve bank of St. Louis in 2008:
It is important to understand that income inequality is a byproduct of a well-functioning capitalist economy. Individuals' earnings are directly related to their productivity. Wealthy people are not wealthy because they have more money; it is because they have greater productivity. Different incomes, thus, reflect different productivity levels. The unconstrained opportunity for individuals to create value for society, which is reflected by their income, encourages innovation and entrepreneurship. Economic research has documented a positive correlation between entrepreneurship/innovation and overall economic growth. A wary eye should be cast on policies that aim to shrink the income distribution by redistributing income from the more productive to the less productive simply for the sake of "fairness." Redistribution of wealth would increase the costs of entrepreneurship and innovation, with the result being lower overall economic growth for everyone. Income inequality should not be vilified, and public policy should encourage people to move up the income distribution and not penalize them for having already done so.
"Income inequality should not be vilified..." It's obvious those Fed guys could not have foreseen a president of the United States demonizing the rich the way Obama has.