Should we focus on economic growth or reducing income inequality, if both are our goals?

3 Oct

From the editorial page of the WSJ (excerpt):

incomes fell after 1999 through 2004 but then rose again for three straight years and nearly reached the 1999 level in 2007 at $56,436. The bottom fell out with the 2008 financial panic and recession, as you would expect. But the amazing fact of the Obama years is that incomes did not rebound with the recovery as they have in every other expansion. Only in 2013 did incomes begin to pick up modestly, five long years into recovery.

Even then real median income did not increase in 2013 in 36 states. Instead, the gains were concentrated in metro areas like Washington-Arlington-Alexandria (median: $90,149), San Francisco-Oakland-Hayward ($79,624) and Boston-Cambridge-Newton ($72,907). Wyoming amid the fracking revolution was another standout, with the median rising 5.7%.

This slow, uneven growth has also led to an increase in inequality by the measures the President’s favorite economists like to cite. The Census reports that the U.S. Gini Coefficient, which measures income inequality, “was significantly higher” in 2013, rising to 0.481 from 0.476. About 45.3 million people or 14.5% of the population live below the official poverty line, down from 15% in 2012 but statistically the same number of people. Poverty over the prior four years rose to the highest levels since the mid-1960s. The poverty rate was 14.3% in 2009 and 12.5% in 2007.

This month the Federal Reserve also published its triennial Survey of Consumer Finances examining the 2010-2013 period. Overall average real family income rose 4%, but median income fell 5%, “consistent with increasing income concentration.” There were essentially no changes for people between the 40th and 90th income percentiles after steep losses from 2007-2010, while median income rose 2% among the top 10% and fell 5.5% among the bottom 40%.

All of this is especially notable because it follows the most sustained policy focus on reducing inequality in decades. President Obama’s stimulus spending in 2009-2010 was devoted mainly to transfer payments like Medicaid and jobless benefits. Expanding the number of Americans on food stamps and disability payments have been explicit policy goals. ObamaCare is designed to provide “free” health care to millions of Americans by taxing the wealthy and those who already have insurance.

Mr. Obama has also focused on income redistribution to punish the affluent while financing income transfers. So he cornered Republicans in the 2013 fiscal cliff and succeeded in raising the top income tax rate as well as levies on capital gains, dividends and small-business income.

On CBS ‘s “60 Minutes” on Sunday Mr. Obama answered a question about economic anxiety by offering another increase in the minimum wage. But the Nancy Pelosi Democrats raised the minimum wage in three stages to $7.25 an hour in 2009 from $5.15 in 2007. If mandated wages are so beneficial to the American worker, where is the evidence?

The Census data show that every income group that was supposed to benefit from the higher wages is worse off than before the minimum wage was increased. This is because the benefits of mandated wage increases for some workers are dwarfed by the overall negative economic trends of slower growth and reduced opportunity.

Another culprit in this skewed economic recovery has been monetary policy. The Fed’s QE exertions have been explicitly targeted at raising asset prices, such as stocks and real estate, that are disproportionately held by the affluent. Meantime, Americans without such assets have received a pittance on their savings. The White House has been a stalwart supporter of these Fed policies.

Census data like this used to get banner headlines, but these days they barely get media notice. Perhaps it is too embarrassing to point out that the policies flaunted to reduce inequality have presided over so much more of it. Instead, liberals use the fact of flat or falling incomes to call for more of the same policies that have resulted in flat or falling incomes. By making equality a higher priority than economic growth, Mr. Obama has reduced growth and increased inequality.

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