WASHINGTON — Six years ago this month, newly elected President Barack Obama declared in a speech that “the strength of our economy can be measured directly by the strength of our middle class.” By that direct measure, the economy is weaker today than it was then, despite accelerating economic growth, tumbling unemployment and rising stock prices.
The nation’s median income remains lower than it was when the Great Recession ended. Scan down the typical family’s balance sheet, and the picture looks even worse. From 2010 to 2013, middle-class families sold off assets and spent down what little savings they had to pay off debt and compensate for stagnating wages, according to calculations by New York University economist Edward Wolff.
The homeownership rate for the middle class is now more than 10 percent lower than it was in 2007. Stock-ownership rates are down 15 percent and pension ownership is down 17 percent. Middle-class Americans, in other words, are in a much worse position to benefit from the rising asset values.
This was the economic conundrum Obama needed to navigate deftly in the State of the Union: how to claim credit for broad economic improvement while acknowledging how poorly the middle class has fared. A second conundrum was how to pitch policies aimed at a middle-class turnaround that his policies thus far have failed to deliver.
Obama did that by arguing he had done the necessary work to get the economy into recovery, and by making the case, going forward, for building on a policy philosophy he dubbed “middle-class economics.”
“Middle-class economics works,” he declared. “Tonight, together, let’s do more to restore the link between hard work and growing opportunity for every American.”
Team Obama appears to have invented that term fairly recently, as a counterpoint to Ronald Reagan’s “trickle-down economics.” Whatever you call it, the idea that the economy performs best when average workers thrive has been gaining among economists, Democrats and even GOP presidential hopefuls.
When he has tried to address middle-class issues, Obama’s proposals relied on taxing the rich to pay for government programs (notably the Affordable Care Act) or expanding tax breaks meant to help workers. Congress has rarely embraced those proposals.
On Tuesday night, Obama’s State of the Union pitch had three essential components: how to help middle-class paychecks stretch farther; how to set the stage for more high-paying jobs; and how to prepare workers for those better jobs. The third part is all about education and skills training.
But although that third part is largely about getting Congress to sign off on the money to pay for more education, the second part presents Obama with much more of a conundrum: Even if Americans get more education, where, exactly, will they find better jobs?
This president’s answer to that is mostly improved infrastructure coupled with light industrial policy — support for manufacturing. But that’s probably not enough to deliver the number of jobs Obama imagines.
This is where his tax-reform plan comes into play: changing the incentives for success in America. He does that by trying to narrow the difference between the taxes on labor income and capital income, or what you earn by working versus what you earn by investing. Many economists say the preferential treatment for capital income has led to the excessive growth of Wall Street.
