Obama, Furman, and inequality

Posted: 29 September 2016 in Uncategorized
Tags: , , , ,


Yesterday, I questioned the case—presented by Jason Furman and the White House Council of Economic Advisers—that the Obama administration had made a “historic achievement in reducing inequality.”

James Kwak, as it turns out, had much the same reaction:

inequality is every bit the problem we’ve always thought it was. It’s not as bad today as it would be if John McCain had been elected eight years ago. But we’re no closer to addressing its fundamental causes.


First, Kwak explains that the key chart behind the Obama administration claim (which I’ve reposted above) is not what it seems. It doesn’t show inequality has actually declined by the stipulated amounts. What it does show is that (a) in 2017 (and therefore a forecast for next year) and (b) in comparison to a world in which the Bush-era tax cuts didn’t expire and without the Affordable Care Act (and therefore a parallel universe of lower tax rates and pre-Obama health coverage rates) “our universe is a little less unequal than that parallel universe.”

In summary, the economic factors that produce higher pre-tax income inequality—stagnant middle-class wages, high corporate profits, and booming asset markets—are alive and well, and it doesn’t seem the Obama administration has done much about them. The administration did pass the Affordable Care Act and let the Bush tax cuts expire for the rich, both of which helped mitigate the pre-tax inequality produced by contemporary American capitalism. But even if Barack Obama called inequality the “defining challenge of our time,” he has done little to tackle its fundamental causes. Let’s hope the next president does better.


Kwak then takes on the larger issue of whether inequality has actually been getting worse or better under the Obama administration. What he shows (much as I argued yesterday) is that, while tax-and-transfer policies have made the distribution of income less unequal than it otherwise would have been (thus, the red line is lower than either the green or blue lines), they’ve done nothing to change the “underlying economic factors that determine inequality of pre-tax income.”

What we’ve seen then is pre-tax inequality has continued to grow and, even though tax-and-transfer policies lower the degree of inequality (and, indeed, have widened the gap between pre-tax and post-tax inequality), overall inequality has continued to grow under the Obama administration.

And looking forward?

Yes, 2015 was a good year for middle-class families, but it didn’t come close to making up for several bad years during the current expansion. There’s no obvious reason why the pre-tax income share of the 1% will stop rising anytime soon—except for the next recession, after which it will most likely continue its long-term ascent.

That, in my view, is why “economic inequality will remain the ‘defining challenge of the next generation, too’.”

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