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One thing we agree on: middle class pay needs to catch up

Irwin M. Stelzer

President Barack Obama surely deserves to relax today and enjoy the Super Bowl after an arduous week in which he prepared and delivered his fifth State of the Union message, one the White House admits set forth a rather limited agenda.

He had to make a last-minute change when a new study revealed that one of his main themes, that economic mobility is “declining” in the United States, is not true. The president knows that inequalities of income and wealth have never troubled Americans quite as much as electorates in other countries because of the belief that anyone can rise above his or her birth-station by dint of hard work, with the current occupants of the White House prime examples of that upward mobility. So he hoped to attack inequality of opportunity. When the president was into the nth draft of his speech, Raj Chetty and Emmanuel Saez, professors at Harvard and the University of California, respectively, reported that their study of tens of millions of tax records proved that economic mobility has not “declined”. Instead, it has remained essentially unchanged for the past 20 years, reducing support for the idea that a crisis demanding government action is upon us. Still, the president seems to have hit upon a related theme that resonates with many, and perhaps a majority of Americans: rising income inequality unrelated to job performance. Jamie Dimon, chief executive of JP Morgan Chase, after presiding over management miscues that resulted in fines of some $20bn and still counting, is deemed by the bank’s board (which he chairs) to be worthy of a reward of a 74% pay rise while real wages of middle-class workers remain virtually unchanged for decades.Anecdotes such as this trump demonstrations that rising income inequality is ameliorated by the progressive tax system and transfer payments, that it has its roots in the malign effect of globalisation on unskilled workers, and that it is a consequence of the Federal Reserve Board’s decision to fight the recession by driving up the value of assets such as shares and houses. This voter unease has focused the minds of the politicians who hope to remain in or join the House of Representatives and the Senate after the November elections. Some want to “give America a raise” by increasing the federal minimum wage from $7.25 an hour to $10.10, as Obama urged them to do. “It’s easy to remember 10.10. It will help families. It will give businesses customers with more money to spend,” said the president. It would do that, concede the president’s critics, but it would also reduce the pay of many workers from $7.25 an hour to zero as they are laid off by, for example, fast-food franchisees, who tell me they will bring in more automation. As I write, it seems unlikely that the president can win congressional approval for the rise.

Others want to help the unemployed by passing legislation proposed by the president to extend the usual 26 weeks of unemployment benefits by perhaps three months, the previous 99-week extension having expired in December. That, say Obama’s critics, would only encourage many of those who have dropped out of the workforce to remain on their couches rather than “get on their bikes” and renew their efforts to find work, or seek training that would suit them for what the president calls “21st century jobs”, many of which are now unfilled. All seem to agree that whether the problem is too few jobs, too few good-paying jobs of the sort that built the American middle class, or too much being siphoned off by “the 1%”, more rapid economic growth would be part of any solution. That, say such as former Treasury secretary Larry Summers, just might be beyond our reach. He worries that we might have entered a period he tags with the long-forgotten label “secular stagnation” – growth too slow to produce full employment, or of a nature that relies more and more on robots and other substitutes for human labour.

Meanwhile, the president is urging Congress to pass a new stimulus package to fund another attempt at creating jobs by rebuilding the nation’s infrastructure. Never mind that perhaps 2,000 (Obama’s estimate ) to 20,000 (Keystone advocates’ estimate) jobs would be there for the taking if the president ended three years of stalling and approved the Keystone pipeline that would bring more Canadian oil to the US. To Obama there are good jobs, such as installing solar panels on roofs, erecting wind farms, and growing marijuana, and bad jobs, such as mining coal or building an oil pipe-line from Canada to America.

A bruised president, hemmed in by a constitution that places power of the purse in the hands of a Republican-controlled House of Representatives, and by an electorate that disapproves of his job performance, nevertheless proclaims this a “Year of Action” in which he will deploy two weapons. The first is the power of the presidential pen (photo of said implement released to the press), to be used to bypass Congress and rule by executive order, notably in the energy sector by having his regulators write rules on carbon emissions.

The second is by seeking co-operation from the private sector and ordinary citizens. He has extracted pledges from several leading businesses not to discriminate against the long-term unemployed when filling job vacancies; is asking moms to persuade their healthy youngsters to sign up for Obamacare to offset the large number of sick and elderly who might drive insurance premiums to unaffordable levels; and is asking those children to guide their moms through the computer maze they confront when seeking to enrol in his healthcare programme – “Your mom will appreciate hearing from you,” he joked. The general consensus among Democrats is that the president has set a usable stage for the coming elections, and among Republicans that his speech was a confession of a lack of power to implement even a modest agenda. Independent voters will be heard from on election day.

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