Income inequality has been growing since the 1970s, but President Obama’s economic policies are making it worse and much faster than Presidents Bush or Clinton.
Globalization is driving the sinking fortunes of many ordinary Americans.
Prior to World War II, the U.S. economy was largely isolated. It traded with the world much less than rivals like Germany, labor was scarcer and wages were higher for ordinary workers than just about anyplace else.
The New Deal strengthened unions and the post-war growth of manufacturing created a thriving middle class. Competition for workers tended to raise wages in service activities too.
Subsequently, the United States championed freer trade through the WTO. Cheaper ocean freight, then jet travel and now the internet blurred boundaries between national markets.
Combined with the rise of Japan and China, those severely injured U.S. electronics, auto and other manufacturing, and are now eroding employment in many professional services.
An open global economy created broad opportunities for college educated Americans with sophisticated skills in advanced technology, finance and the creative arts—like film making. First National City Bank, a dominant player in New York State, became Citigroup, a dominant force in global finance.
All of this decimated unions and lowered wages for workers with only a high school education or soft college degree, while enriching the relatively few in engineering, finance or other highly technical areas.
The top 1 percent now earn nearly one-fifth of the country’s household income, and the top 10 percent more than half. That’s the most since 1928, and Obama’s policies have made things worse—faster.
In a globalized economy, America has to play its strengths, but during the Obama recovery the international trade deficit has nearly doubled.
Bans on offshore drilling and in parts of Alaska require expensive oil imports, and send purchasing power and high paying jobs to the Middle East and Russia. The flood of manufacturers from China keeps growing, thanks to an undervalued yuan and other subsidies the Administration refuses to address.
Dodd-Frank bank reforms have not stopped reckless and unethical behavior on Wall Street. Witness JP Morgan’s "London Whale" and how often that venerable institution and Goldman Sachs are dragged into court these days.
Yet, new regulations have imposed burdensome costs on smaller banks, forcing many to sell out to the Wall Street casinos and permitting the latter to grasp control of more than fifty percent of U.S. bank deposits. The resulting downward pressure on CD rates deprives many older Americans of retirement income, while permitting the barons of Manhattan to continue receiving multi-million dollar bonuses.
ObamaCare is forcing businesses to divide full-time jobs for ordinary workers into part-time positions to avoid expensive health insurance mandates, and those jobs pay less.
Higher taxes on top income earners have hit small businesses the hardest. Financiers, high tech entrepreneurs and movie producers can pass off their salaries as capital gains through loopholes in the tax code. The president rails against that opportunity to enjoy much lower rates than the rest of us, but has done little to fix it.
Meanwhile, small businesses paying marginal rates as high as 60 percent in states with liberal governors like New York, California or Maryland don’t invest and create jobs.
During the Obama recovery, the top one percent has captured 95 percent of the income gains—almost double the average for the Clinton and Bush recoveries.
Obama tells Americans he’s for the middle class. The facts tell another story. The president’s policies are enriching the same folks that support his campaigns—the rich liberals on Wall Street, in the Silicon Valley and in Hollywood.
Peter Morici served as Chief Economist at the U.S. International Trade Commission from 1993 to 1995. He is an economist and professor at the Smith School of Business, University of Maryland.