July 25 (Bloomberg) -- Eight years ago, then-Senator Barack Obama traveled to Knox College in Galesburg, Illinois, to deliver a big speech about how to ensure that the middle class benefited from the nation’s economic prosperity. On Wednesday, Obama revisited both the campus and the message. He only had to substitute the word “recovery” for “prosperity.”
To say that a lot has happened in the intervening years would be an understatement. The world economy nearly collapsed. Obama got himself elected president -- not once, but twice. The Republican Party grew more obstreperous. And, perhaps most important, the middle class is in worse shape now than it was eight years ago.
A lot of factors are to blame, and the president has his reasons for focusing on some more than others. The emphasis on rising inequality, however, is vital.
The link between higher productivity and wages has been severed, Obama said Wednesday, with the result that the income of the top 1 percent has nearly quadrupled, while the typical family’s has barely budged. The median household now earns less than it did in 2000.
Recent research also suggests that income inequality is growing faster in the U.S. than in other Western countries. Inequality is hurting access to good schools and high-paying jobs. For today’s youth, the economic status of their parents, or where they live, will largely determine what they become as adults -- hardly the American Dream.
Few would deny that a thriving middle class is necessary for a healthy economy. Identifying what most needs fixing isn’t that difficult, either. Obama’s speech named quite a few candidates: improving the education system, retraining out-of-work employees, rebuilding the manufacturing base, lowering health-care costs, cutting higher-education tuition, and upgrading transportation and information networks.
Yes, we have heard all this before -- in 2005 and dozens of times since. But the financial crisis and ensuing recession made it difficult for Obama to put into practice many of the ideas he has frequently talked about. Now, with the economy steadily improving, the U.S. finally can move away from crisis management and take the longer view. Obama isn’t just ticking the “time to give a jobs speech” box; he’s addressing the U.S.’s structural jobs deficit -- one that could take a generation to close.
There is another factor that has prevented Obama from addressing these issues, of course: Congress. House Republicans are plotting some of the deepest cuts in domestic programs in a generation -- on top of the more than $2 trillion in reductions over the past two years -- as the price for funding government programs and raising the debt ceiling this fall. Some of the funds they would slash go toward research and development, education and public-works modernization -- programs that can help make the economy more robust.
Few economists, moreover, support the Republicans’ call for more domestic spending cuts in the current context of rapidly shrinking deficits and tepid economic growth. The Congressional Budget Office projects that the 2013 deficit will decline to $642 billion, just 4 percent of gross domestic product and down from 10 percent in 2009. At the same time, recent tax increases and spending cuts have sapped consumer demand and slowed the economy. Most experts expect second-quarter growth to come in at less than 1 percent.
Republicans are fighting the wrong demon. As Federal Reserve Chairman Ben Bernanke told Congress last week, “The risk remains that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect.” House Republicans’ other so-called economic priority, repealing the Patient Protection and Affordable Care Act, hardly amounts to an economic plan.
Nor, to be fair, does making a good speech. Time and again, Obama has laid out reasonable solutions in compelling language. His challenge is the harder job of wooing Republicans, pressuring business leaders to make his case to Congress, using the trappings of office to lobby lawmakers. Obama is promising to do all those things now. It’s never too late.
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