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Obama's Biggest Challenge: Inequality

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As President Obama begins his second term, he's not lacking for challenges, such as jobs, immigration and gun control, not to mention Afghanistan and Iran. Meanwhile, recalcitrant Republicans contest every move the president makes. But Obama's biggest challenge, economic inequality, gets little attention from many politicians.

To his credit, the president continues to decry inequality. In his second inaugural address, Obama said,
"[Americans] understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it. We believe that America's prosperity must rest upon the broad shoulders of a rising middle class."

The president and most Democrats recognize the gap between the rich and poor is now as large as at any time in the last one hundred years. In 2011, the Congressional Budget Office found that between 1979 and 2007, "After-tax income for the highest-income households grew more than it did for any other group... 275 percent for the top 1 percent of households, 65 percent for the next 19 percent, just under 40 percent for the next 60 percent, and 18 percent for the bottom 20 percent."

Remarkably, Republicans don't seem concerned about the growing economic divide. Many conservatives, such as Arthur Okun, believe inequality is the price America pays for an efficient economy. They argue we shouldn't worry about inequality so long as there continues to be social mobility and the economy performs well. But the last twenty years has seen a dramatic decrease in mobility and a marked increase in economic instability.

In October, Berkeley sociologist Jerome Karabel published a paper detailing the decline in U.S. social mobility:

Family origins matter more in the United States in determining where one ends up in life compared to other wealthy democratic countries. This is a recent development. Studies of social mobility as far back as the 1950s and 1960s showed that rates of movement in the United States were generally comparable to other developed countries.

An August 16th, 2011, section of the PBS News Hour focused on the lack of public awareness of the growing economic divide. Many Americans cling to the notion that wealth is relatively equally distributed. The reality is that the top 20 percent of Americans have 84 percent of the wealth, the second quintile has 11 percent, the middle quintile has four percent, and the bottom 40 percent has but .3 percent.

Despite these disquieting facts, Americans might tolerate record inequality if it was the price the U.S. paid for a dynamic economy. But Nobel Laureate Joseph Stiglitz argues the reverse is true: inequality is bad for the economy. Writing in the New York Times Stiglitz observed:

There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth... Second, the hollowing out of the middle class since the 1970s... means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses. Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks... Low tax receipts mean that the government cannot make the vital investments in infrastructure, education, research and health that are crucial for restoring long-term economic strength. Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable.

On December 6, 2011, President Obama made his defining speech on economic inequality:

This is a make-or-break moment for the middle class, and for all those who are fighting to get into the middle class. Because what's at stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home, [and] secure their retirement. Now, in the midst of this debate, there are some who seem to be suffering from a kind of collective amnesia... they want to go back to the same policies that stacked the deck against middle-class Americans for way too many years. And their philosophy is simple: We are better off when everybody is left to fend for themselves and play by their own rules. I am here to say they are wrong... I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, when everyone plays by the same rules. These aren't Democratic values or Republican values... They're American values.

Obama was correct that the ultimate solution to the problem of inequality requires a shift in values. Nonetheless, in an America that is becoming more unequal every day, addressing inequality requires political will, the moral strength to right a wrong. On February 12th, when the president gives his State of the Union address, he'll have an opportunity to target inequality, make specific proposals, and build support to fix America's most challenging problem.