In his fresh effort to put the economy back at center stage in Washington, President Obama has issued a new challenge to congressional Republicans on the crucial issue of why the American middle class is hurting and which side can best lift average Americans out of the rut. And the president has history on his side of the argument.
Both sides agree that the middle class is financially squeezed. But they disagree on the causes and the cures, which means they are headed for a nasty showdown in the fall over government programs and the budget.
Obama is pushing the economics of growth. He blames the middle class crunch on a "winner-take-all economy where a few are doing better and better and everyone else just treads water." To change course, he argues, America must "make the investments necessary to promote long-term growth and shared prosperity — rebuilding our manufacturing base, educating our workforce, upgrading our transportation system, upgrading our information networks."
By contrast, Speaker John Boehner and his House Republicans are preaching the economics of austerity: Cut budgets, cut government, cut benefit programs. In the Boehner/Tea Party vision, the key to growth is trickle-down economics: cutting taxes for the wealthy, deregulating banks and business, and freeing up the private sector to generate a growing economy.
It's a vision with popular appeal, but history exposes the flaws in that reasoning.
We have become two Americas — literally, the 99 percent and the 1 percent. We have what a Citigroup investment brochure called the most eye-popping concentration of wealth in a great power since 16th century Spain. The numbers are staggering. From 1979 to 2011, 84 percent of the nation's increase in income has gone to the wealthiest 1 percent, according to Alan Krueger, a Princeton economist who now chairs the White House Council of Economic Advisers.
We are still in the grip of that long-term trend. According to the Census Bureau, the typical male worker made the same hourly pay and benefits in 2011 as in 1978, adjusted for inflation. Three decades of going nowhere.
This has serious consequences for all of us. When the super-rich get so much of the growing economic pie and the middle class gets so little, the wide income gap hurts U.S. economic growth. The evidence is unambiguous, reports Harvard economist Philippe Aghion. Multiple studies, he says, document that "greater inequality (of income) reduces the rate of growth."
"It's not just morally wrong, its bad economics," Obama added recently, "because when middle class families have less to spend, guess what? Businesses have fewer consumers."
Hedrick Smith, former Washington bureau chief for the New York Times, is the author of “Who Stole the American Dream?” He wrote this for the Los Angeles Times.