One of the strangest spectacles of recent American history has been the campaign by president Obama to lead the charge against income inequality when Obama, himself, has been the one person who has done the most to promote that very inequality. It is as if Obama were going out each evening and shooting people to death and then each day announcing that he was going to lead the fight against gun violence. It is also strange to watch the mainstream media ignore this story; they cover Obama's "fight" against income inequality as if he had just been a bystander during the last five years rather than the driving force bringing on more and more inequality.
We need to look at the causes of income inequality to see just how much to blame Obama really is for the current situation.
1. For the bulk of the American people, household income comes from wages. People hold jobs and get paid for their work. Think about what that means. Simply put, if you want to raise the income of the vast middle of the American people, you need to either create more jobs or create conditions under which people get paid more for doing their work. Obama has done neither of these thing. Indeed, most of Obama's actions have worked against job creation and economic growth.
Obama's first big economic move was the stimulus. That 2009 measure spent nearly a trillion dollars of borrowed money. The biggest single component, however, was the payment of funds to states so that they could keep public employees on the payroll. These were not new jobs. These were not jobs that create other jobs. These were not jobs for which there were raises. The biggest part of the stimulus just paid some public employees for their work for a bit longer prior to their being laid off.
Another big Obama economic move was the so called Cash for Clunkers. That gave some people help getting rid of very old cars to buy new ones. The cars which were junked were all on the verge of being discarded. Obama's program spent billions to get folks to move their decision up by a few months. It moved some car purchases up a few months; that is all. Once the program ended, car sales collapsed. Obama's program did not create any new sales. It just spent billions to move around the timing of sales that would otherwise have occurred.
Then there is the granddaddy of all of Obama's programs: Obamacare. That multi-trillion dollar legislation sucked cash out of the pockets of middle America through higher insurance premiums (although lower ones were promised) at the same time that it forced businesses to lay off many people in order to avoid the mandatory provision of insurance. Even worse, Obamacare put so much uncertainty into everyday business decisions, that it slowed the economy while business owners debate how to deal with the law.
Obama never put forward a plan to actually encourage investment in the economy. Such a program would have increased growth of both the economy and jobs. All Obama could talk about was education, but that does not increase current jobs in the slightest.
In short, Obama did nothing for five years after the worst recession in 70 years to promote economic growth, job creation and higher incomes for the average American.
2. A smaller segment of the American people get significant income from investments. This income breaks down into three main parts: a) interest on savings, b) capital gains and c) real estate. Of these three parts, the one that is most widespread used to be interest on savings. Millions of folks, especially retired Americans, had savings on which they earned interest. The money was in certificates of deposit, money market accounts, Treasury bonds and the like. Under Obama, this interest income has been wiped out. If you have any savings in a bank, you know that the account that used to pay 5% in the last years when George Bush was president now pays 0.01% in the Obama era. For an elderly person who saved up $150,000 over his or her lifetime, that cut in interest rates means that instead of getting $7500 in additional income from interest, that person now gets $150 per year. Imagine these cuts spread across America and you can see one of the main reasons why the middle income groups are losing ground to the rich. Obama has applauded while interest rates have been kept low.
And what of real estate? For most people, real estate investment consists of their house. During Obama's presidency, the value of the average American home has fallen. These values are rising over the last few years, but they still are not back to where they were the day Obama took office. No one is going to increase his or her income by selling the family home.
That leaves capital gains, the profits that one makes by buying and selling investments, usually stocks. This is mostly the province of the rich. Oh, many in middle America have retirement accounts, but they just do not have major investments in the stock market. In the Obama economy, however, these are the source of the biggest increases in wealth. Stock prices have risen dramatically since early 2009. Nearly all those gains have gone to the wealthy. Since only these investments have been throwing off major profits, it is no surprise that the gains have gone to the wealthy.
So why is it that investments like stocks have done so well? The answer is that these gains are the result of federal policies under Obama. Remember those low interest rates that Obama has favored? They pushed up stock prices by forcing the money that used to go into savings accounts and other interest generating investments to go into the stock market instead. After all, it makes no sense to put funds into accounts that pay no meaningful interest when the stock market could provide a real return. And let's not forget the policy of Quantitative Easing. That policy has the central bank buying trillions of dollars of government debt over the last five years. So much has been pumped into the investments of Quantitative Easing that the funds that used to go into Treasury bonds moved instead to the stock market. In simple terms, it means more money chasing the same amount of stock. The result is ever rising prices which attract even more money into the market. The end product of this cycle is that the rich get richer.
For those who may find it hard to believe that the federal policies are making the rich richer, I suggest that they go back to the explanations that were released when Quantitative Easing first came on the scene. In those explanations, we were told that the main goal of the program was to make investors (the rich) wealthier. The investments were going to create a "virtuous cycle", or so we were told. The cash flooding the markets would raise stock prices, then investors would feel wealthier, then these folks would spend more which would help grow the economy, then that economic growth would drive up stock prices further and the whole cycle would repeat itself. For the most part, this is the Obama era version of trickle down economics.
In past years, trickle down meant that individuals were given incentives to invest in new plants and businesses which created jobs for millions. This new wealth spread as the employees in those new jobs spent their earnings. That led to other new businesses and expansions of older ones and then to creation of even more jobs. It was the driving force that led to 25 years of steady expansion after the 1982 Reagan tax cuts. Liberals, however, did not like this engine of economic growth because it worked by giving incentives to the wealthy to invest in new plants and businesses. They denounced it as "welfare for the rich".
Instead, we now have the Obama era version of trickle down. Today, the government follows policies that encourage the wealthy to invest in financial assets like stocks. At the same time, the federal government under Obama puts obstacles in place that actually reduces investment in businesses. This Obama era plan no longer results in the creation of new jobs and businesses. Instead, it is planned to work by making the rich richer so that they will spend more. And like most liberal plans, this one did not work. After the first round of Quantitative Easing, the stock market had risen, but there was no big spurt of economic growth. So what did the liberals do? They followed their usual prescription for all government programs, "if it does not work, just do it again and make it bigger the next time." We had a series of QE programs that are still going on.
So where does this leave America? We have borrowed trillions of dollars and pumped a like amount into driving up the prices in the stock market. The government under Obama has worked hard to make the rich richer. But the vast middle of the American people have gotten nothing from this. Obama has made the income divide in this country grow like it never has before. The next time you hear Obama denounce income inequality, remember that no president has ever done more to promote INCOME INEQUALITY than Obama.
We need to look at the causes of income inequality to see just how much to blame Obama really is for the current situation.
1. For the bulk of the American people, household income comes from wages. People hold jobs and get paid for their work. Think about what that means. Simply put, if you want to raise the income of the vast middle of the American people, you need to either create more jobs or create conditions under which people get paid more for doing their work. Obama has done neither of these thing. Indeed, most of Obama's actions have worked against job creation and economic growth.
Obama's first big economic move was the stimulus. That 2009 measure spent nearly a trillion dollars of borrowed money. The biggest single component, however, was the payment of funds to states so that they could keep public employees on the payroll. These were not new jobs. These were not jobs that create other jobs. These were not jobs for which there were raises. The biggest part of the stimulus just paid some public employees for their work for a bit longer prior to their being laid off.
Another big Obama economic move was the so called Cash for Clunkers. That gave some people help getting rid of very old cars to buy new ones. The cars which were junked were all on the verge of being discarded. Obama's program spent billions to get folks to move their decision up by a few months. It moved some car purchases up a few months; that is all. Once the program ended, car sales collapsed. Obama's program did not create any new sales. It just spent billions to move around the timing of sales that would otherwise have occurred.
Then there is the granddaddy of all of Obama's programs: Obamacare. That multi-trillion dollar legislation sucked cash out of the pockets of middle America through higher insurance premiums (although lower ones were promised) at the same time that it forced businesses to lay off many people in order to avoid the mandatory provision of insurance. Even worse, Obamacare put so much uncertainty into everyday business decisions, that it slowed the economy while business owners debate how to deal with the law.
Obama never put forward a plan to actually encourage investment in the economy. Such a program would have increased growth of both the economy and jobs. All Obama could talk about was education, but that does not increase current jobs in the slightest.
In short, Obama did nothing for five years after the worst recession in 70 years to promote economic growth, job creation and higher incomes for the average American.
2. A smaller segment of the American people get significant income from investments. This income breaks down into three main parts: a) interest on savings, b) capital gains and c) real estate. Of these three parts, the one that is most widespread used to be interest on savings. Millions of folks, especially retired Americans, had savings on which they earned interest. The money was in certificates of deposit, money market accounts, Treasury bonds and the like. Under Obama, this interest income has been wiped out. If you have any savings in a bank, you know that the account that used to pay 5% in the last years when George Bush was president now pays 0.01% in the Obama era. For an elderly person who saved up $150,000 over his or her lifetime, that cut in interest rates means that instead of getting $7500 in additional income from interest, that person now gets $150 per year. Imagine these cuts spread across America and you can see one of the main reasons why the middle income groups are losing ground to the rich. Obama has applauded while interest rates have been kept low.
And what of real estate? For most people, real estate investment consists of their house. During Obama's presidency, the value of the average American home has fallen. These values are rising over the last few years, but they still are not back to where they were the day Obama took office. No one is going to increase his or her income by selling the family home.
That leaves capital gains, the profits that one makes by buying and selling investments, usually stocks. This is mostly the province of the rich. Oh, many in middle America have retirement accounts, but they just do not have major investments in the stock market. In the Obama economy, however, these are the source of the biggest increases in wealth. Stock prices have risen dramatically since early 2009. Nearly all those gains have gone to the wealthy. Since only these investments have been throwing off major profits, it is no surprise that the gains have gone to the wealthy.
So why is it that investments like stocks have done so well? The answer is that these gains are the result of federal policies under Obama. Remember those low interest rates that Obama has favored? They pushed up stock prices by forcing the money that used to go into savings accounts and other interest generating investments to go into the stock market instead. After all, it makes no sense to put funds into accounts that pay no meaningful interest when the stock market could provide a real return. And let's not forget the policy of Quantitative Easing. That policy has the central bank buying trillions of dollars of government debt over the last five years. So much has been pumped into the investments of Quantitative Easing that the funds that used to go into Treasury bonds moved instead to the stock market. In simple terms, it means more money chasing the same amount of stock. The result is ever rising prices which attract even more money into the market. The end product of this cycle is that the rich get richer.
For those who may find it hard to believe that the federal policies are making the rich richer, I suggest that they go back to the explanations that were released when Quantitative Easing first came on the scene. In those explanations, we were told that the main goal of the program was to make investors (the rich) wealthier. The investments were going to create a "virtuous cycle", or so we were told. The cash flooding the markets would raise stock prices, then investors would feel wealthier, then these folks would spend more which would help grow the economy, then that economic growth would drive up stock prices further and the whole cycle would repeat itself. For the most part, this is the Obama era version of trickle down economics.
In past years, trickle down meant that individuals were given incentives to invest in new plants and businesses which created jobs for millions. This new wealth spread as the employees in those new jobs spent their earnings. That led to other new businesses and expansions of older ones and then to creation of even more jobs. It was the driving force that led to 25 years of steady expansion after the 1982 Reagan tax cuts. Liberals, however, did not like this engine of economic growth because it worked by giving incentives to the wealthy to invest in new plants and businesses. They denounced it as "welfare for the rich".
Instead, we now have the Obama era version of trickle down. Today, the government follows policies that encourage the wealthy to invest in financial assets like stocks. At the same time, the federal government under Obama puts obstacles in place that actually reduces investment in businesses. This Obama era plan no longer results in the creation of new jobs and businesses. Instead, it is planned to work by making the rich richer so that they will spend more. And like most liberal plans, this one did not work. After the first round of Quantitative Easing, the stock market had risen, but there was no big spurt of economic growth. So what did the liberals do? They followed their usual prescription for all government programs, "if it does not work, just do it again and make it bigger the next time." We had a series of QE programs that are still going on.
So where does this leave America? We have borrowed trillions of dollars and pumped a like amount into driving up the prices in the stock market. The government under Obama has worked hard to make the rich richer. But the vast middle of the American people have gotten nothing from this. Obama has made the income divide in this country grow like it never has before. The next time you hear Obama denounce income inequality, remember that no president has ever done more to promote INCOME INEQUALITY than Obama.
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