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Hopeless Inequality (or Feeble Politics)?

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Though President Obama's State of the Union said the right things about the disgrace of growing inequality in America, his remedial measures are mainly gestures. Yes, they are gestures in the right direction, but not an effective politics.

Obama's plea, "Give America a raise," was the most effective applause line of the evening. Even Republicans were compelled to cheer. But his order raising the minimum wage on government contractors will help a few hundred thousand workers and add less than a billion dollars to household purchasing power. He declined to use other executive powers to compel contractors not to violate basic labor laws.

His directive allowing the creation of self-started IRA accounts for low-income workers will perhaps promote the habit of savings. But it will not give them the needed income to spare them from living hand to mouth with nothing left over to save.

Much of Obama program is voluntary. He enlisted business leaders not to discriminate against the 4 million Americans who are long-term unemployed. That's fine, but unless we create a lot more jobs, this is just a game of musical chairs: some long-term unemployed person gets a job, and someone else doesn't. One could imagine Mitt Romney proposing the same.

All of which raises a question: Are there deep structural forces in the economy that make it impervious to efforts to greater opportunity and greater equality, and makes the politics of equality a fool's errand?

The usual list of causes includes these:

Technology. The digital economy rewards the highly creative and punishes routine workers. It creates instant billionaires at one extreme, and an army of easily replaceable drudges at the other. I've written about Taskrabbit.com, which invites people to bid against each other to do other people's chores.

In the cyber-economy, the clever aren't satisfied with salaried jobs. Ezra Klein discovers that he's a brand, and graduates from blogger to media entrepreneur. At the other end of the spectrum, millions of wannabees work for little or nothing. It's analogous to all the inner city kids who hope to become the next LeBron James, the vast majority of whom simply end up poor.

Return to Skills. In a Tom Friedman style economy, in which "the world is flat" and one big marketplace, people are increasingly paid on the basis of skills. If super-talented people with millions of fans reap massive rewards, isn't that just the market being efficient? The economist Robert Frank calls this a "winner-take-all economy." If Apple can earn billions of fans, doesn't Apple deserve its rewards?

Globalization. With billions of desperately poor workers willing to perform the same jobs that Americans do, and with the same technology, why deny them opportunities? Why not enjoy the low prices that their low wages deliver?

Faced with these deep structural changes, combined with relentless Republican obstructionism, no wonder Obama's speech came across as weak tea. The same deep structural trends are at work across the Atlantic, increasing levels of inequality even in nations with strong egalitarian tradition and institutions, and even when social democrats govern with real working majorities. Swimming upstream against these trends turns out to be really hard.

But let's not give our leaders too facile an alibi. In order to understand what's really at work here, and what a president might do to alter it, it's necessary to distinguish what markets do well from what they do badly and the economic from the political.

There is a case that Bill Gates earned his billions. (There is also a case that Microsoft abused its monopoly power to crush rival start-ups, and that rightwing courts gave Microsoft the benefit of the doubt.) But let's concede that some of the market's big winners deserve some of their winnings. That hardly describes Goldman Sachs, a case of the market delivering toxins rather than benefits. So at least some of the winner-take-all is a case of market failure, not market success.

Do we really need globalization on its present terms, which promotes both excess speculation and a race to the bottom in both social and regulatory standards? Did a Democratic president realty have to embrace the corporate agenda in promoting the proposed Pacific (TPP) and Atlantic (T-TIP) trade deals, neither of which include meaningful social standards, and both of which make it easier for corporations to challenge ordinary regulations as barriers to trade?

Yes, many of the underlying forces cut in the direction of greater inequality--but then, capitalism usually does that. The specifics were different, but the income distribution and the concentration of wealth were pretty similar to today's inequality during the Gilded Age of the late 19th century and the Roaring Twenties just before the Crash of 1929.

The point is that good policies can counteract the gross inequalities without harming the entrepreneurial genius. On the contrary, the golden age of more equal opportunity and more highly regulated capitalism during and after World War II was a period of record high growth.

We could have much higher minimum wages, and more progressive taxation, and more spending on public goods, and more constraints on financial speculation, if our politics allowed it. We don't have to have trade rules that allow the fruits of production that brutalized workers in the Third World to enter our shores tariff-free. We could have trade rules that raised standards. We don't have to have financial rules that allow moguls to crash the economy and then reward them with even bigger paydays.

If we had full employment, even routine workers would command higher earnings. If we had more investment in schools and skills, more workers could ascend the ladder.

And here is where the politics comes in. The president can't wave a wand and suddenly make the Republicans stop blocking a more progressive program based on a single state of the union address. But surely he can put bolder items on the national agenda and dare the Republicans to vote against them.

For instance, President Obama in 2010 embraced the corporate austerity agenda when he appointed the Bowles Simpson Commission. Many of his people have promoted a grand bargain to raise taxes and further cut social outlays, including Social Security. His own budget includes a cut in the annual cost of living increase

Raising Social Security benefit, a logical response to collapsing private pensions, was considered unthinkable--until Senator Elizabeth Warren proposed it. Suddenly, Social Security's foes are on the defensive. President Obama might have proposed that.

Before we can have a set of policies that offsets the structural trends that promote greater inequality, we need a politics. We need a movement. A president can't create that movement single handedly, but at least he can jam the opposition and point to what's possible and necessary.

In this respect, Obama's State of the Union was a double disappointment. As economics, few of his executive initiatives will make much difference. As election year politics, the speech suggested a president boxed in, unable to do much other than small-bore gestures, still committed to looking for (almost nonexistent) common ground with a Republican opposition whose prime goal is to destroy him, his legacy and his party. As Obama's illustrious predecessor John Kennedy said, We can do better.

Robert Kuttner's new book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos.

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