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The Haves and Have-Nots

By Gregg Sangillo

American University professors discuss President Obama’s latest push on income inequality.

At the upcoming State of the Union address, President Barack Obama is expected to highlight income inequality as a grave problem facing the nation.

At the upcoming State of the Union address, President Barack Obama is expected to highlight income inequality as a grave problem facing the nation. Since Obama and Democrats began their recent push, income inequality has been heavily debated by economists and pundits in newspaper editorials and blog posts. Examining the haves and have-nots is not new. Class conflict animated the pages of Charles Dickens before dominating the storylines of “Downton Abbey.” But current alarming numbers are giving the issue newfound salience. “We are at the highest levels of inequality since 1929,” says Jon Wisman, a professor in the Economics Department at American University.

A number of AU professors have studied the implications of income inequality. In addition, Elizabeth Crowe, a PhD candidate in the Department of Public Administration & Policy, was recently named the 2013 winner of an endowment award for the study of productivity, income, and poverty in the United States.

A Stronger Labor Force

In the view of AU economics professor Robert Lerman, the damage caused by income inequality has been “a bit overstated.”

“The content of the inequality, or the meaning of it, is very different from what it was 100 years ago,” he says. A vast majority of low-income Americans own cars, for instance. “The difference between owning a Rolls-Royce and owning a Hyundai is very high in terms of dollars. But I’m not sure that it’s nearly as high in terms of meaning of consumption.”

Lerman would rather focus on expanding worker training to fit the current labor market. “I think the key problems are more people in lower-income and lower-middle incomes having the adequate resources to live on an everyday basis, to participate in the economy.”

Economists have argued intensely about what is driving inequality, with everything from globalization to family structure singled out as leading causes. What’s not in dispute is that inflation-adjusted wages and salaries haven’t kept pace with productivity growth since the 1970s. Stagnant wages for millions of Americans is a major factor contributing to inequality, according to a 2013 New York Times analysis.  

Lerman believes that wages will increase for low-income workers if you make them more skilled and valuable. “You can try to increase wages by mandate, but if you do that without doing anything on the productivity side, there will be fewer workers,” he says. To build a stronger labor force, Lerman has promoted apprenticeships and founded the American Institute for Innovative Apprenticeship.

“You can get maybe six weeks of training to become a simple welder. Or you can have a serious apprenticeship program that gradually moves you into robotic welding and programmable stuff that makes people much more valuable,” he explains. “Just as you can be a cook at McDonald’s or move into a higher value-added culinary activity.”

Politicians in both parties promote Pell grants and community colleges to assist young people. While Lerman doesn’t oppose that, he says elected officials should also consider public investments in apprenticeship programs. “Many [Pell grants] are going for people to attend community colleges, or private career colleges, in narrow professional areas where dropout rates are extremely high. Where there’s not this close match between what they’re learning and jobs, as in the case of apprenticeships,” he says.

Thorny Politics

In the past, many Democrats have been reluctant to talk about income inequality, fearing Republican charges of divisive politics and class warfare.

School of Public Affairs professor Jan Leighley recently co-authored the book Who Votes Now? Demographics, Issues, Inequality, and Turnout in the United States, which examines voter turnout trends in presidential elections from 1972-2008. Wealthy people are much more likely to vote than poor people. Notably, the authors found that voters are significantly more conservative than nonvoters on issues related to redistribution of the wealth.

“Individuals in the lowest-income quintile—the poorest 20 percent of the population—see increasingly less of a difference between Republican and Democratic candidates,” she says in an interview. “If this segment of the population doesn’t see that there’s a choice, we’re not surprised that at this time of increasing inequality, rich people continue to vote between 70-80 percent of the time, and poor people are down at 20-25 percent.”

However, some party activists and hardcore liberals—the types of voters who could turn out for the 2014 midterm elections—are energized by the populist rhetoric of Sen. Elizabeth Warren, D-Mass. and New York City Mayor Bill de Blasio. But Leighley argues that building a midterm campaign strategy around tackling inequality carries risk.

“It could get you some votes, but again, you’re going to have to play that off against [the question], ‘Are you going to lose some votes among independents and moderates?” she explains.

Reliving History

Wisman identifies historic forces that increased inequality and provoked backlashes against it. After sizable increases in inequality following the Civil War, a populist movement sprang up around the turn of the 20th century and sparked key Progressive Era reforms. The Great Depression led to progressive legislation that, in his view, increased the welfare of the working and middle classes. Stagflation in the 1970s helped delegitimize Keynesian economics, opening the door for lower taxes on the rich and less public welfare spending. “Over this period of 30 some years, this creates just massive inequality that people are suffering from today,” he opines.

So are we on the precipice of another public outcry? Will Obama help jumpstart a new Progressive Era?

“A couple of years ago when the Occupy Wall Street movement began, it suggested that it’s now going to happen again….But it just fizzled out,” Wisman says. “There is dramatically increasing concern with the issue of inequality. Whether that will actually generate some kind of political movement for us to do something is an open question.”