Income Inequality Is Temporarily Down, But Hardly Out

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


Has income inequality increased under President Obama? David Leonhardt says no, and provides two reasons.

The first reason is fairly uninteresting: the rich suffered huge losses during the Great Collapse of 2008. So even though they’ve gobbled up nearly all of the earning gains since then, they still haven’t gotten back to their 2007 income levels.

This is uninteresting because it’s only temporarily true. Given current trends, the rich will regain all their losses within another year or two, and probably surpass them. Incomes of the rich have always been volatile, but the broad trend of the past few decades is pretty clear: they invariably make up the losses they incur during recessions and then soar to new heights. This is almost certain to happen again as the recovery strengthens.

Leonhardt’s second reason, however, is more interesting: government policy under Obama has increased the earnings of the poor and the middle class. Leonhardt cites a recent study from Stephen Rose of George Washington University:

The existing safety net of jobless benefits, food stamps and the like cushioned the blow of the so-called Great Recession. So did the stimulus bill that President Obama signed in 2009 and some smaller bills passed afterward. “Not only were low-income people protected — middle-income and some higher income-households had much lower losses because of these public policies,” Mr. Rose said. “For those who think government programs never work, maybe they need to think again.”

….Pretax income for the middle class and poor dropped substantially from 2007 to 2011 — about 10 percent for most groups. Yet including taxes and transfers, incomes fared better: Average income for the bottom fifth of earners rose 2.6 percent, to $24,100, and the average for the middle fifth fell only 2 percent, to $59,000. Such stagnation is hardly good news, but it’s a lot better than a large decline.

We can add Obamacare to that list too. It effectively increased the earnings of millions of low-income workers. And retaining the pre-Bush top marginal tax rates in the fiscal cliff deal of 2012 decreased the post-tax earnings of the rich slightly.

None of this is massive. The rich will make up their losses, safety net programs are already receding as the economy recovers, and middle-class wages continue to be pretty stagnant. The growth of income inequality may have taken a brief hiatus when the economy crashed, but it’s almost certain to return, bigger and badder than ever. As Leonhardt concludes:

Mr. Rose himself, who’s more optimistic about the state of the middle class than I am, says, the United States has “a real income-inequality problem.”

But the fact that inequality hasn’t continued rising in the last several years matters — first, because facts matter, and, second, because it helps show what Washington has the potential to do. For much of the last few decades, rather than attacking inequality, government policy has exacerbated it. Tax rates on the very rich, the same group receiving the largest pretax raises, have fallen the most.

In the last several years, however, the federal government has tried to combat inequality, through a combination of tax and spending policies. These efforts weren’t aggressive enough to bring major raises to most families. The financial crisis was too big, and Washington’s response was too restrained. Yet the efforts were aggressive enough to make a difference.

They are a reminder that rising inequality is not inevitable, and that the country has the power to shape its economy.

This is true. Unfortunately, Obama’s efforts to modestly address income inequality were nearly all completed during his first year in office, when he had big Democratic majorities in Congress. Since then, almost nothing has happened, and that’s the way things are likely to stay as long as Republicans remain resolutely opposed to anything that concretely helps either the poor or the middle class.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with The Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with The Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate