The Way Back. F. H. Buckley

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       CHAPTER

       4

       Unequal and Immobile

      IN 2008, BARACK OBAMA WAS ELECTED PRESIDENT AFTER a largely issue-free campaign. There were serious issues out there, to be sure. The war in Iraq continued, but after the surge U.S. combat fatalities had fallen from 126 in May 2007 to thirteen in July 2008. The military mission would be scaled back, whoever won the election. The financial crisis, which began with the bankruptcy of Lehman Brothers in 2007, would turn out to be a defining challenge for the Obama administration; but it was not an issue that much divided the parties the next year, and the government bailout was authorized by legislation signed by George W. Bush.

      The principal issue of the campaign was nothing so boring as that. Instead, the issue was the candidates, and in particular Obama, who ran as a charismatic leader. He had virtually nothing by way of legislative background, but offered hope and change and the promise that his election would signal “the moment when the rise of the oceans began to slow and our planet began to heal.” There was also the prospect of absolution for America’s historical racial injustices, coupled with the sly suggestion that his opponents were tinged with racism. They would dwell on his faults, he said, and then they would add, “Did I mention he was black?”

      To many pundits, the election of a rock star president in 2008 seemed a one-off, not to be repeated. In future elections, Democrats would not be faced by a tired John McCain and life and politics would go on, not much changed. “This was a good Democratic year,” observed Bill Kristol, “but it is still a center-right country.”¹ Within two years, however, Democratic majorities in the House and Senate had passed far-reaching progressive legislation: the Patient Protection and Affordable Care Act (Obamacare) and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

      The Tea Party irruption and the 2010 Congressional election, which returned control of the House to Republicans, might have seemed to evidence Kristol’s beliefs about a conservative country, but if so the 2012 presidential election would have been a rude awakening. If the 2008 election was largely content-free, the 2012 election was fought over a single issue, that of income inequality and immobility, in which Obama and the Democrats employed the rhetoric of class warfare to pit the bottom 99 percent against the top one percent. The 2014 mid-term elections were again a turn to the Right, but the impuissance of Congress in a country with an increasingly presidential form of government focuses attention on 2016, and the prospect of another election for the highest office fought over income disparities by candidates both Left and Right.

      In a signature 2011 speech in Osawatomie, Kansas, Obama described income inequality as the defining issue of our time. America’s grand bargain, he said, was that those who contribute to the country should share in its wealth. That bargain had made the country great, the envy of the world, but now it was betrayed by the “breathtaking greed” of the super-rich.

       Look at the statistics. In the last few decades, the average income of the top 1 percent has gone up by more than 250 percent to $1.2 million per year. . . . And yet, over the last decade the incomes of most Americans have actually fallen by about 6 percent.²

      The problem was worsened, he said, by a tax system whose shelters and loopholes gave the super-rich lower rates than the middle class. “Some billionaires have a tax rate as low as 1 percent. One percent. That is the height of unfairness. It is wrong.” And how did this happen? Because inequality gave the superrich who contribute to political parties an outsized voice in the way in which tax and other laws are written. Worse still, he said, the promise of income mobility, that a child born in poverty might through his own efforts rise to the middle class, had been broken.

      Mitt Romney sought to deflect Obama’s message with a promise of a more entrepreneurial society, but this failed to arouse much enthusiasm. The Republican candidate, with his 59-point recovery plan, didn’t connect with the voters. What they wanted instead was a candidate who would speak to the issues of income inequality and income immobility. The Republicans weren’t interested in inequality—but inequality was interested in them. And so Romney lost, and this at a time when the economy was so weak that pundit George F. Will opined that, if Obama won, the Republicans should find another line of work.

      The voters’ concerns were magnified by the severe job losses of the Great Recession. In the twenty-six months between December 2007 and January 2010, the economy shed 7.2 million jobs and those with a high school education or less accounted for four-fifths of the job losses.³ The community organizer—Obama—told them he had their back, while the asset fund manager—Romney—came across as the boss who was about to give them the pink slip.

      The Great Recession of 2007–09, and the job losses that ensued, threatened a core belief of ordinary Americans, the idea that this is a country of economic promise where everyone can get ahead. If that’s no longer the case something seems drastically wrong. Let’s start, then, by asking whether income inequality is really the problem it’s cracked up to be. We’ll never have perfect income equality, so long as people sort themselves out by their industry and talents, and any government that tried to mandate it would, if successful, deprive its citizens of the incentive to produce wealth. Everyone would be equal, but they’d also be very, very poor. Income disparities in themselves are not a problem, then, unless they rise to the levels described so effectively by Obama, where we’ve become immobile, where the rich shape the contours of the laws and prevent those at the bottom of the ladder from getting ahead. Is Obama’s America our America, then?

Inequality

      To measure income inequality, one must first ask what one is looking for. Income might be pre-tax earnings, or it might be take-home pay after taxes. Pre-tax income provides a better measure of overall changes in the economy; post-tax income provides a better measure of the effect of the government’s tax and welfare policies. Taking it a step further to include the government’s entire safety net would have one include non-cash, in-kind government transfers, such as food stamps, school lunches, and subsidized housing.

      All of these measures are of interest. We’d like to know whether recent changes in the economy have increased income inequality, and we’d also like to know what the government has done about it through its tax and welfare policies. For the moment what I want to know is whether current economic trends, excluding taxes and government safety nets, can explain the rise of inequality. I’ll subsequently look at what the government has done to adjust for this through its tax policies and welfare benefits.

       Measuring Pre-tax Earnings

      Pre-tax income might be raw income, one’s salary before taxes (including business income from partnerships and pass-through S corporations). Then there are capital gains, the benefit derived from the appreciation of one’s assets. Capital gains in turn might either be realized (where an asset is sold above cost during a fiscal year) or unrealized (where the asset isn’t sold but has simply appreciated in value).

      It’s not really possible to measure pre-tax income shorn of how it’s affected by government policies. When marginal tax rates are higher than 90 percent, as they were in the 1950s, the very rich are going to slack off and earn less, or at least report less income on their tax returns.

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