Join 350,000+ subscribers and keep yourself informed with a selection of
The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
An account already exists for this email address, please log in.
Republicans are finally talking about income inequality. But they're getting it all wrong.
The GOP has shown little fresh thinking on how to address the income gap
Mitt Romney once said inequality was a divisive, inflammatory issue to be discussed only in "quiet rooms." Many of his fellow Republicans seemed to agree, attacking any mention of income gaps as "class warfare" or the "politics of envy." Recall the outrage on the right when Pope Francis critiqued the "trickle-down theories" of conservative economists.
But that was when the unemployment rate was a lot higher. With the economic recovery seemingly accelerating, Republicans are scrambling for relevant new ways to critique President Obama's economic performance. And some are suddenly expressing concern that the rising tide of economic growth is lifting only the yachts.
"I think inequality can be a problem, and interestingly seems to be getting a little bit worse under this administration," Rand Paul, a likely presidential candidate, recently told NPR. In a New York Times interview, former Romney running mate Paul Ryan said that while he rejected "envy economics," it is also the case that the "the wealthy are doing really well. They're practicing trickle-down economics now." And the mission statement of Jeb Bush's Right to Rise presidential super PAC concedes that "the income gap is real," while adding that only "conservative principles" can deal with it. Even Romney changed his tune, citing inequality as one reason he was thinking about a third presidential run.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Of course, Republicans have their own spin on the issue. And unsurprisingly it has little to do with the stuff Democrats prefer to talk about: the tax code, the decline of union power, the explosion of CEO pay. Which is OK, since it's debatable whether those are the major factors driving inequality.
But the GOP take shows little fresh thinking about how technology and globalization are transforming the American economy in the long term— and what novel policy responses might be required in response.
Instead, Republicans are rounding up the usual suspects. Blame "Obamanomics" for creating a historically weak recovery. Blame the Federal Reserve for bond-buying policies that supposedly boosted the stock holdings of the 1 percent and little else. As the GOP-aligned Heritage Foundation explained after Fed boss Janet Yellen gave a speech on inequality:
Ms. Yellen never mentions that Obamanomics has made inequality much worse... Her silence on this point shouldn't be too surprising because she has supported most of Obama's economic policies. She has also been a cheerleader of the Fed's easy money policies which have benefited those at the top and almost no one else... One could argue the best way to reduce inequality is to repeal everything that President Obama has done since he entered office. [Heritage]
A clever bit of political jiu-jitsu, perhaps, but weak economics. To believe the Obamanomics explanation, you also have to believe (a) that if not for the president's policies, the economy would be growing much faster, and (b) that the fruits of growth would make it to the middle class. Both suppositions are dubious. Even without Obama's policy mistakes, such as the 2013 tax hikes and the ill-designed fiscal stimulus, this recovery was likely always going to be subpar given the diabolical duo of a financial shock and a housing bust.
Sign up for The Week’s Politics Recap newsletter
Making sense of the week's political news, delivered every Wednesday
And faster growth doesn't do a whole lot for the 99 percent if most of those gains from growth only go to the top. That's a trend that appears to predate Obama.
Moreover, if you do think growth is the answer, then the Fed has been a friend, not a foe. The central bank's quantitative easing plan, according to Republican economist Martin Feldstein, was a "success" that stimulated growth and job creation. Or as JPMorgan economist Michael Feroli notes, "To the extent Fed policy has been stimulating economic activity...it is serving to narrow wage disparities — or at least offset other longer-run forces that have been contributing to growing wage inequality."
You know what's bad for the middle class? A never-ending recession like the one in Europe, thanks in large part to a do-nothing central bank.
So how should Republicans think and talk about inequality? The big problem with high-end inequality is not that it necessarily reduces GDP growth. Instead, it increases the impact of barriers to income mobility such as poor schools, pricey colleges, weak public transit, and onerous occupational licensing schemes. If you can't climb the ladder, then a top rung that's ever further away becomes a bigger problem. While conservatives should applaud when an entrepreneur strikes it rich thanks to an innovative new idea, product, or service, they should freely criticize crony capitalist policies that benefit the powerful and politically connected, such as special tax breaks, strong intellectual property laws, or the safety net for Wall Street banks that are "too big to fail."
When income inequality starts to hurt middle-class opportunity, it should be the concern of both parties.
James Pethokoukis is the DeWitt Wallace Fellow at the American Enterprise Institute where he runs the AEIdeas blog. He has also written for The New York Times, National Review, Commentary, The Weekly Standard, and other places.
