Inequality 3.

In November 2014 the voters completed their long swing from creating a Democratic majority in Congress and the White House in the 2008 elections to creating a Republican majority in Congress. President Obama has little chance of getting any legislation through Congress between now and the end of his term in 2016. Instead, in recent months the president has sought to shape the terms of debate in future elections.[1]

The latest component in this effort came out on 19 February 2015, with the release of the annual “Economic Report of the President.”[2] The document restates President Obama’s “middle-class economics” prescriptions.

The report adopts a “historical” approach.[3] The years from 1948 to 1973 were the “Age of Shared Growth.” Operating in an almost competition-free global environment and making good use of technological innovations, productivity rose sharply and inequality remained at the comparatively low levels achieved during the Depression and New Deal. Incomes doubled over the course of this quarter century. The report assigns an important role to the power of unions and to a sense of community on the part of corporate leaders. This golden age gave way to a second period, from 1973 to 1995, which the report labels the “Age of Expanded Participation.” During these years, productivity growth slowed down and a rising share of income went to those with more education. Families made up for the short-fall in their desired incomes by having both mothers and fathers work. This silver age gave way to a third period, from 1995 to the present, which the report calls the “Age of Productivity Recovery.” In this period, computer and internet technology boosted productivity out of its doldrums, but the benefits flowed to those with more education even more than before. The Great Recession came at the end of this age of lead. During the recession, women entered the labor force in smaller numbers and men just dropped out of it in larger numbers than at any time in human memory. Baby Boomers aging-out of the labor force will only compound the strains.

The President wants to take this moment to urge his “middle class economics.” In practice, this means more spending on education and on infrastructure; rapid completion of trade deals with Europe and the countries of the Pacific region; carrying out immigration reform; reforming the tax on business; and cutting taxes on “modest” incomes while raising taxes on high incomes. He thinks that these measures will increase productivity.

The president faces push-back. Democrats hate free trade because it ships low-skill/low-educations jobs overseas[4], harming the interests of the sort of people who used to make up much of the Democratic base. Republicans oppose higher taxes on high incomes because they shift money from investment toward consumption, harming the interests of the sort of people who still make up much of the Republican base.

There’s a lot to like in the report. Education and infrastructure need improvement; more trade deals are better than fewer; and immigration reform needs to go through. There’s also a lot to argue with. Tax “cuts” on low income groups just pay them to stay the same, when they need to change; higher taxes reduce investment when we need a lot.

Will Hillary Clinton feel bound by this report? Will Republicans take it seriously?

[1] One can’t help but suspect that experience has taught him that the Democratic Party in general is not deeply committed to his own vision of a just society.

[2] John Harwood, “Economic Report From Obama Focuses on Income Inequality,” NYT, 20 February 2015.

[3] There is a lot to quibble with in the report’s historical sophistication.

[4] In fact, a lot of American jobs were lost to China, rather than to NAFTA, which created American jobs.

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