08/09/2013 05:50 pm ET Updated Oct 09, 2013

Obama and Why Hollowing Out the Middle Class Is Damaging

In his ongoing series of speeches on the economy, President Obama lays heavy emphasis on the problem of inequality. With the shrinking of the middle class, the population gets split into rich and poor. Moving up the ladder gets increasingly difficult. Why is that such a big deal?

Dawning popular awareness

The political importance of inequality rose to the surface quite recently in the Occupy Wall Street protests that were inspired by the worldwide chaos ensuing from the unbridled greed of securities traders and unscrupulous bankers.

Since the 2009 crisis, Wall Street has recovered fine thanks to an infusion of free money and the CEOs are enjoying a hefty increase in salaries and bonuses whereas the taxpayers, who bailed them out, still have not recovered even half of their lost wealth.

This fact illustrates a fundamental inequity of the system but complaining about the success of the super rich can seem like the politics of envy. Obama realizes that the contemporary squeezing of the middle class represents a significant loss of opportunity for future widespread prosperity. Inequality is not just a matter of a handful of billionaires making out like bandits. It is bad for everyone.

Inequality makes everyone poorer

This conclusion leaps from the pages of The Spirit Level by Richard Wilkinson and Kate Pickett. Their main point is that high levels of income inequality detract from the quality of life for all residents of a country, even the privileged elite. Inequality is stressful and undermines trust.

Wilkinson and Pickett compiled an index of health and social problems for the wealthiest countries in the world. They included:

  • Life expectancy and infant mortality
  • Obesity
  • Mental illness
  • Teenage births
  • Imprisonment rates
  • Homicides
  • Level of trust
  • Children's educational performance
  • Social mobility

When they graphed the Index of Health and Social Problems against income inequality, the found that more unequal countries did worse on every criterion. This means that if a country has very unequal distribution of income, you can be sure that it also has severe problems with health, crime, education, and social mobility. Interestingly, it is also more religious as I explain in a recent book Why Atheism Will Replace Religion.

Social problems of all kinds follow from inequality. One simple measure of inequality is the ratio of income of the top 20% compared to the bottom 20% of the population. In Japan and Scandinavia, a typical ratio is that the richest fifth are four times better off than the poorest quintile. For Portugal and the U.S, the ratio is around 8. meaning that inequality is twice as great.

Wilkinson and Pickett make a compelling case that inequality has a destructive impact on many aspects of the quality of life. But why is this?

Why inequality is so socially corrosive

Interesting as the connection between social problems and inequality is, the likely underlying mechanisms are quite fascinating. Wilkinson and Pickett argue that in more unequal societies, there is greater anxiety about social evaluation.

They state:

Greater inequality seems to heighten people's social evaluation anxieties by increasing the importance of social status. Instead of accepting each other as equals on the basis of our common humanity as we might in more equal settings, getting the measure of others becomes more important as status differences widen. We come to see social position as a more important feature of a person's identity. Between strangers, it may often be the dominant feature.

Along with increased anxiety levels, more unequal societies undermine social trust and generate high levels of crime, violence, and mental illness and lose their effectiveness in education. Who can deny that we suffer more from these problems in the U.S. today than in earlier times when this was a more egalitarian society having better opportunities for social mobility.

Highly unequal societies become dysfunctional. Wilkinson and Pickett highlight the response to Hurricane Katrina where state troopers strapped on weapons to shoot looters instead of rescuing people from roofs. One could point to many other symptoms from crumbling antiquated infrastructure to a government incapable of simple tasks such as funding its own activities.

In contrast, the health and happiness we associate with the American Dream are more typical of contemporary Japan and Scandinavia. Unbridled greed at the top makes life unbearable for everyone.

Obama wants more Americans to have the opportunities that he availed himself of. We would all be a lot better off if more people earned good wages that permitted them to buy homes and raise children free of poverty.