President Obama’s State of the Union Address is expected to focus heavily on income inequality. Swiping rather liberally from Mayor de Blasio’s playbook, the president will likely imply that the reason some Americans are poor is because other Americans are rich.
Such sentiments may play well to the president’s base, but in reality, there is no relationship between inequality and poverty. In fact, if we were to double everyone’s income tomorrow, millions of Americans would be lifted out of poverty, but inequality would actually increase.
Still, income inequality has increased in America — especially during the first five years of the Obama administration. According to a study by Emmanuel Saez and Thomas Piketty, the top 1 percent of earners have captured more of the income gains under Obama than under that champion of the plutocracy George W. Bush.
In part, this is because the president’s choices over at the Federal Reserve have pursued an easy‐money policy that has helped spur speculation and a rising stock market. Since the wealthy are much more heavily invested in the market, its 80 percent‐plus rise since 2008 has meant the rich have gotten richer.
And when it comes to helping the poor, Obama offers nothing but failed policies.
For those Americans struggling to find a way out of poverty, few things are more important than a job. In fact, less than 3 percent of Americans who work full‐time — including those in the entry‐level, minimum‐wage jobs — live in families with incomes below the poverty level. But the president’s policies all too often rip away that first rung on the ladder out of poverty.
Consider some of what President de Blasio … er, Obama will call for tonight. The centerpiece of his income‐equality strategy is likely to be raising the minimum wage. Yet that would actually help few poor people. Research by Joseph Sabia of San Diego State University and Richard Burkhauser of Cornell found that if the federal minimum wage were upped to $9.50 per hour, only 11.3 percent of workers who would gain live in poor households, while more than 42 percent of those who would benefit live in households with incomes above 300 percent of the poverty level. The study also found that state and federal minimum‐wage hikes between 2003 and 2007 had no effect on state poverty rates.
While increasing the wages of college students and second earners from middle‐class households, Obama’s proposal would eliminate many of the entry‐level jobs that might start poor Americans on the road out of poverty. As David Neumark and William Wascher reported for the National Bureau of Economic Research, “studies that focus on the least‐skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups” from minimum‐wage hikes.
Nor should we forget ObamaCare’s impact on job‐creation. Next year, businesses with more than 50 employees will have to provide health insurance to their workers or pay a $2,000 to $3,000 penalty. For a midsize employer that doesn’t offer insurance today, that amounts to more than a $1‑per‐hour increase in every employee’s compensation. Even employers that provide insurance now will find their per‐employee costs rising as ObamaCare drives up their premiums and requires that they provide more comprehensive and expensive insurance than they do now.
As a result, businesses are hiring fewer workers; when they do hire, it’s more likely to be part‐timers. About two‐thirds of the jobs created this year have been part‐time.
The president, like de Blasio, will also call for more spending on pre‐school. This, despite the fact that the government’s own studies show that any gains from Head Start and other pre‐school programs are minimal and fleeting; gone by the time a child enters third grade.
In short, the president, like the mayor, believes that the pie is essentially fixed and government’s job is to divide it up more fairly. But in reality, the pie is infinite.
If President Obama and Mayor de Blasio worried a little less about whether someone somewhere was getting rich, and a little more about how to create prosperity, we might do a much better job of raising Americans out of poverty. If we did that, inequality would take care of itself.