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Why President Obama Is Right to Focus on Inequality

07/31/2013 05:31 pm ET | Updated Sep 30, 2013
AP

In his recent speech at Knox College, President Obama renewed the nation's focus on income inequality, drawing criticism from the right for pandering to the usual Democratic interest groups instead of addressing real economic issues like jobs and growth. This reaction stems from a misunderstanding of recent history that is sadly prevalent among the American public. To set the record straight, let's take a trip back in time...

Three decades ago, we awoke to Ronald Reagan's "Morning in America."

It was 1983, and our economy had been through the deepest recession since the Great Depression. Reagan had slashed tax rates and broken the unions. In return, we were promised a bright future with faster economic growth for all.

At first glance, it looks like the Gipper delivered on his promise.

From 1983 to 2013, our economy's output more than doubled, even after adjusting for inflation. The average worker today is 85 percent more productive than their predecessors were when Reagan took office. Taxes take a much smaller bite out of our income than they did in Reagan's day, and American businesses are more profitable than ever before.

If the story ends there, it's not hard to see why Republicans still believe in the power of Reaganomics.

But, as in every good story, there's a twist. In this case, the twist is inequality, a politically charged word that Republicans rarely speak of. And for good reason: It invalidates their entire belief system.

The aggregate data leads you to believe that everyone's income doubled, but that's so far from the truth that it's nearly criminal to foist that story on the public.

In fact, since 1983, the only incomes that have doubled after inflation are the incomes of the richest 0.1 percent of Americans. That's one-tenth of the infamous "One Percent." For the other 99.9 percent of Americans, inflation-adjusted incomes have grown by less than 20 percent.

But that's a high threshold. In order to be a member of the top 0.1 percent, you have to earn over $1.5 million. What if we set the bar at a more reasonable level? Let's exclude everyone making over $110,000. That's a pretty good cutoff for what we consider to be "rich," and it still leaves us with 90 percent of Americans earning less than that. These are the people who were supposed to enjoy the benefits of Reagan's "trickle-down economics." How much did they gain since 1983?

Nothing.

For the 90 percent of Americans earning less than six figures, there has been absolutely zero income growth after inflation in the last three decades.

Sit back and contemplate that fact for a moment. During a period when the economy doubled in size, the total income earned by 90 percent of Americans didn't increase by a single penny. All the gains went to the richest 10 percent.

Of course, the size of the economy is not directly comparable to the incomes of individual households. The economy grows when the population grows, even if individual incomes don't grow. Also, the individual statistics don't include taxes and transfers like Social Security and unemployment insurance. However, none of these facts change the big picture: After three decades of strong economic growth, the average American's paycheck has barely budged.

You have to ask yourself: What's the point? Why do we work so hard to make the economy grow if none of it is going into our pockets?

It hardly seems fair, but that's not the only problem. Inequality isn't just the by-product of a broken system; it's a cause of the brokenness as well.

A growing economy is like a growing child. It needs to be fed often and well. The more an economy produces, the more its citizens must consume. If most Americans aren't earning more money, they can't afford all that extra consumption. So they borrow more than they should, but all that borrowing requires growing paychecks to repay the loans. When debt outstrips income, they default, and the economy comes crashing down.

That's what President Obama meant when he said this crisis has been three decades in the making. That's why it has become his highest priority. All our economic problems -- high unemployment, weak economic growth, excessive debt and financial instability -- have the same root cause: Most people aren't earning enough money -- and it's not because the economy isn't producing it. It's because a tiny portion of the population is siphoning too much of it for themselves.

It's not just a matter of politics, as the President's critics would have you believe. It's a matter of basic economics. "Morning in America" has only been bright for a select few. For most Americans, it's been as dark as night.

The Reaganomics experiment has failed. It's time for all of us to see the light.