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The Defining Challenge

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“Making sure our economy works for every working American… is the defining challenge of our time,” says President Obama.

The premise of the American Dream, the president noted in last week’s important speech, is “we’re all created equal… and while we don’t promise equal outcomes, we have strived to deliver equal opportunity.” Our delivery record has not been perfect, but the rough arc of American history has bent toward social mobility and the notion that every generation has enjoyed a better than life than the previous one.

That changed, says Obama, as “the social compact began to unravel.” Technological advances made it possible for companies to produce more with fewer workers. Some companies shipped jobs overseas. Fewer jobs meant workers lost economic bargaining power, weakening unions which had fought for workers’ rights.

The power of lobbies representing business, commercial, and financial interests intensified. Washington fell prey to the conservative ideology of trickle-down economics, which simply has not worked. The result is an economy out of kilter, with income inequality increasing steadily since the 1970s, today reaching levels not known since before the start of the Great Depression.

Emmanuel Saez, an economics professor at the University of California-Berkeley, mines tax-return data to demonstrate that in 1928 the top one percent of families earned 24 percent of all pretax income, while the bottom 90 percent received barely 50 percent. By 1944, after the New Deal and the boom caused by World War II, the disparity had lessened: The top one percent’s share was down to 11 percent, while the bottom 90 percent received 68 percent.

The trend reversed again in the 1970s: Now, the top tier has a greater and rising share of the nation’s wealth while the income portion of the bottom 90 percent has fallen. Data for 2012 show the upper one percent with almost 23 percent of pretax income, with the bottom 90 percent now having less than 50 percent for the first time in our history.

Americans understand these dynamics. A Pew Research Center poll conducted in March showed that 61 percent believe the economic system favors the wealthy, while only 35 percent say it’s fair to all. Respondents broke along party lines, with slightly more than half of Republicans (55 percent) saying the system is fair and three-quarters of Democrats and 63 percent of independents believing it favors the wealthy.

President Obama’s speech speaks to both the public perception and the reality of income inequality. It taps into growing national and international attention to economic disparity — from the comments of Pope Francis to the protests of underpaid fast-food and retail workers. The president cited the pope’s trenchant question: “How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?”

Obama touched some of the same chords in his speech two years ago in Osawatomie, Kansas, when he called for a rebirth of Theodore Roosevelt’s “New Nationalism.” The president identified few new policy initiatives in last week’s speech, highlighting instead the new healthcare law and reiterating his support for raising the minimum wage.

Yet the speech holds significance because the president finally accepted progressive arguments that rising inequality is the result not only of structural changes in the economy but of bad political choices made by political leaders over the last four decades. Governed by conservative adherence to trickle-down economics, the nation’s political leaders have slashed taxes, cut spending, and weakened the social safety net. The outcome of such poor policy was inevitable: Rising income inequality.

Probably not much can be accomplished to alleviate income disparity during the remaining three years of the Obama presidency. Washington is too gridlocked; Republicans are too prone to hate anything with the name “Obama” on it (even if they once supported the policy); and the sway of cut taxes and slash spending too powerful still to allow for a serious attack on the “defining challenge of our time.”

But the president has elevated the national dialogue. Progressives touting the problem of economic disparity (see Warren in Massachusetts and the recent mayoralty election in New York City) are becoming more common, and Walmart and McDonald’s workers are no longer silently accepting starvation wages.

Income inequality promises to be an important topic in the 2014 midterm elections and again in the 2016 presidential race. The problem is too acute to be ignored.

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