Discussion: (0 comments)
There are no comments available.
Obama's speeches focused on the middle class. But the neediest could also use some help—namely, opportunity.
View related content: Economics
Amid falling approval ratings and an economy that continues to sputter, President Obama launched an economic-policy tour in recent days with speeches in Illinois, Missouri, Florida and Tennessee. What he said was familiar—a list of the president’s favorite programs and grievances against Republicans. The White House let it be known that the speeches were intended to position Mr. Obama as a champion of the middle class. But not, unfortunately, a champion of those most in need.
We have a robust and growing economy for high-income Americans. Those at the bottom see few prospects for growth and little reason for optimism. Nevertheless, a 2013 analysis by researcher Mark M. Gray at Georgetown University found that Mr. Obama mentions the poor less than any president in decades. In his public statements and official communications on social class, he mentioned the poor only a quarter of the time; in contrast, Ronald Reagan talked about the poor in two-thirds of his public pronouncements. This is puzzling indeed.
Census Bureau data show that in 2006-11, real annual income for the top 20% (quintile) of Americans fell by about 5% but rose almost 2% in 2010-11—and shows signs of continuing an upswing. For the bottom quintile, income fell by over 11%, and there was no upswing.
In 2011, workers in households earning between $40,000 and $60,000 had a 7.8% unemployment rate. In households earning under $20,000, unemployment was 24.4%. The unemployment for households earning more than $150,000 was 3.2%
In other words, high-income households were at or above full employment. Meanwhile, the lowest-income households looked at an employment landscape resembling the worst years of the Great Depression.
“Growing inequality isn’t just morally wrong,” Mr. Obama said on July 24 in Illinois. “It’s bad economics.” That is abundantly true, but not in the way he intended. He meant income inequality. But the real problem—and crisis—is declining opportunity. The Federal Reserve Bank of Boston has shown that in 1980, 21% of Americans in the bottom income quintile rose to the middle quintile or higher by 1990. Those who started off in the bottom quintile in 1995 had only a 15% chance of becoming middle class in 2005. That is a one-third decline in mobility in under a generation.
The key to increasing opportunity is simple: real jobs for adults and good education for children. The president’s speeches disappointed on both counts.
In Tennessee on Tuesday, Mr. Obama said: “A job is a source of pride and dignity—the way you support your family, the proof that you’re doing the right thing.” Exactly—which is why it is so distressing that work has been collapsing in the past five years, with the poor hardest hit.
In 2008, the Bureau of Labor Statistics reported that total nonfarm seasonally adjusted employment was 138 million workers. Today, it is fewer than 136 million. Meanwhile, the number of Americans has grown by 12.8 million. In many areas of the country, more than one in five adults who want full-time employment can’t find it.
Where are the policies that will actually help Americans at the bottom regain the dignity of real, value-creating jobs? I don’t mean the high-skill workers who would benefit from high-tech innovation, biofuels, electric vehicles and other favored industries of the administration, but rather the people left behind.
Again and again, the president offers a higher minimum wage as a solution. Yet as the overwhelming majority of economists have argued for decades, the minimum wage actually harms the poorest and most marginalized workers—those with the most tenuous grip on their jobs. In January, a study from the National Bureau of Economic Research surveyed the most recent studies and concluded: “The evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others.”
The story for strivers and entrepreneurs is no better. Scott Shane of Case Western Reserve University has shown that business formation fell by 17.3% between 2007 and 2009. Launching a business is never a walk in the park, especially given the explosion of red tape at all levels of government. While it is still possible for the educated and comfortable, government bureaucracy can crush entrepreneurship entirely for those at the bottom of the income scale. As a pro-poor rule of thumb, I suggest this: If you want to start a landscaping business, all you should need is a lawn mower, not an accountant and a lawyer to help you hack through all the red tape before setting up shop. Imagine if President Obama fought for such business-friendly simplification.
Perhaps the president’s proposals on education are better for the poor. Sadly, no. Mr. Obama, on his speaking tour, talked about subsidizing college loans—a policy that largely does relatively little for those at the bottom.
According to research from the Pew Charitable Trusts published in 2009, four out of five children whose parents are in the top income quintile enroll in college, and 53% finish. Despite Pell Grants and other aid, only one in three children from the bottom quintile go to college—and just 11% graduate. More troublingly, the government’s growing direct and indirect subsidies to pay for higher education end up inflating tuition rates and push college even further out of reach of people of modest means.
Instead, the administration could go to bat for real education reforms that drive social and economic mobility. The president could do much more than any Republican administration to rescue marginalized children from the complex of bureaucracy and organized labor, while creating opportunities for educational entrepreneurs and disruptive technologies. Eliminating federal barriers to for-profit schools and creating meaningful national standards to compare educational performance would be two steps in the right direction. By being a warrior for true education reform, Mr. Obama could leave a legacy that would lift up the poorest kids for decades to come.
Barack Obama won two elections with laudable promises to fight for people. That should include fighting for people at the bottom, even if the best policies for doing so contradict conventional progressive policy dogma. The American dream, so often mentioned in the president’s speeches, won’t be realized until the least among us have a real chance to earn their success.
There are no comments available.
The Road to Freedom
1150 17th Street, N.W. Washington, D.C. 20036
© 2016 American Enterprise Institute for Public Policy Research