Obama's Magical Misery Tour Takes Us for a Ride

Obama's Magical Misery Tour Takes Us for a Ride

Library of Congress

A while back – maybe after his limp performance in the first election debate – handlers told President Obama that he needed to be more combative. He needed to fight back against Republicans, people opposed to Obamacare (the majority of the country), the Supreme Court, Fox News, and pretty much anyone else who disagrees with his agenda. He needed at all times and in every circumstance to paint the GOP as obstructing his visionary leadership, and responsible for his administration’s shortcomings.

That was bad advice. It has led the president to present every issue as an “us versus them” dogfight--every policy is corrupted by point scoring, every proposal scored by body count. Obama may lead from behind, but he is fighting out in front. It isn’t working for him. In case he hasn’t noticed, nothing is getting done. Gun control, immigration reform – not working. 

Just yesterday he did it again. He raised the issue of tax reform – hitherto supported on both sides of the aisle – in such a way as to kill hopes for real progress. He said he would be happy to support corporate tax reform, by which everyone and his cat means lower rates in return for fewer deductions, as long as the revenues raised could be spent on his “job-creating” plans such as investing in infrastructure. As he well knows, that’s a killer--reform was meant to be revenue neutral, not the source of a giant slush fund. 

The proposal about tax reform was made at an Amazon warehouse in Tennessee, part of his “economics” tour.  It should be called his Magical Misery Tour. Mainly, Obama is pitching the message that most Americans have been left behind, thanks to an uneven playing field created by Republicans. He claims to be uniquely focused on the middle class, while Washington has taken its eye off the ball. Isn’t he the one chasing gun control, and immigration legislation? Isn’t he part of Washington?

It’s a pitch that sours the national mood, pitting Americans against one another. With consumer confidence already turning lower, Obama’s depressing tale of middle class despair is most distinctly what the country does not need. 

The president’s opening speech in Galesburg, Illinois was rambling and unfocused. Perhaps most distressing for the White House: it was a bore. 

Still, certain elements require rebuttal. For instance, it is not true that “the average American earns less than he or she did in 1999.” This canard is based on the fact that real “median” income was stagnant between 2000 and 2007. As Steve Conover, writing in 2011 for the American Enterprise Institute shows in a convincing analysis, the median is not the average; in fact, the quintiles that might reasonably portray “middle class” income actually rose over that period, and in fact gained share of the total.

The gain was at the expense of the highest quintile – the “rich” – and also the lowest. It appears that more people fell into the lowest earning category, but that people who had jobs progressed. Another clue from the same data set – the Gini index of income inequality- basically was unchanged over that time period, again challenging the notion that life improved only for those at the very top.

Much of the “soaring income inequality” mantra has been based on tax returns. As it happens, changes in tax treatment have caused more business owners to file personal rather than corporate tax returns, inflating upper-bracket income. Meanwhile, middle class workers have seen much of their increased compensation over the past decade delivered as increased benefits as opposed to wages.

Former Treasury official and current member of the Social Security Advisory Board Mark Warshawsky addressed the Senate Budget Committee last year, pointing out that “Data and studies support the hypothesis that the rapid increase in health costs leads to an increase in earnings inequality but no change in compensation inequality.” According to his analysis, “From 1999 to 2006, average hourly earnings increased about 29 percent. But hourly compensation, which also includes the cost of benefits, increased more quickly, about a 32 percent increase.” 

Let’s take it from the other side. In his speech, Obama claims, “The average CEO has gotten a raise of nearly 40 percent since 2009.” I have no idea where he came up with those figures. According to the annual Forbes survey, CEO compensation was considerably lower in 2012 that in 2009. Last year the CEO of one of our 500 largest companies earned on average $10.5 million, down from $12.7 million in 2009. Salary and bonus for this crew amounted to $3.5 million in 2012, down from $3.8 million in 2009.

Don’t get me wrong – the 500 individuals in this category did well; still, the reality is that C-suite types got clipped sharply by the recession (2007 total comp came in at a lofty $17.1 million), as should happen in afree enterprise system.

President Obama is correct that those at the bottom of the income ladder are hurting. But, it is unemployment that is the real culprit here. His naïve view is that we should simply dictate higher wages for those earning the minimum wage. Economics 101 says that if you raise the cost of something you will depress demand. In an age when increasing numbers of low-wage workers are at risk of being rendered obsolete by technological change, nothing could be more perilous that shifting the labor-capital equation in favor of automation.

What can improve the lot of hourly workers is a growing economy. A recent New York Times piece quoted Lawrence Katz, Harvard Economic professor as arguing just that point. He concludes. “…a good way to push up wages would be to reduce the jobless rate to 5 percent or less.”

That, unhappily, is not where our ambitious president has focused his efforts or his political capital. Instead, we have Obamacare. Enough said.