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Defending President Obama and the 1 Percent

Saturday, 14 April 2012 08:14

There are plenty of reasons to bash President Obama and even more to bash the richest 1 percent of the income distribution, but it is possible to go off track. The Post did so today in citing a study that shows the top 1 percent got 93 percent of the income gains from 2009-2010.

This is highly misleading because the vast majority of these income gains were capital gains due to the rebound of the stock market following its collapse in 2008-2009. Using this same measure of income, the top 1 percent suffered 49 percent of the income losses in the recession. 

While it is reasonable to include capital gains in a measure of income growth over a long-term (this is money that people have at their disposal), the short-term fluctuations give a very misleading measure of distribution of income. President Bush was not a hero to the bottom 99 percent because the stock market crashed under his watch and President Obama is not a sop for the rich because it recovered while he was in office. (Now bailing out Wall Street is a different matter.)

At one point in discussing Mitt Romney's record as governor of Massachusetts, it tells readers:

"Average weekly wages for workers rose slightly more than they did nationally while Romney was in charge. In Massachusetts, wages went up 4.1 percent from 2002 to 2006, adjusting for inflation. Nationally, they rose 3.2 percent."

Inflation in the Northeast was 1.9 percentage points higher over this period than for the nation as a whole. If the calculation of real wages used for this comparison simply used the nationwide inflation rate to measure the growth of real wages, then it would be seriously misleading. The regional CPI would imply that wage growth in Massachusetts lagged the nationwide average by roughly a percentage point, instead of exceeding it by 0.9 percentage points. (Of course, Romney's ability to influence wage growth in a 4-year stint as governor would be very limited in any case.)

Comments (4)Add Comment
Obama Should Be Praised for the Stock Market Doubling in Value
written by Paul, April 14, 2012 9:51
As usual, the WaPo gets its facts bass ackward because, as usual, it ignores Keynes:

"Unfortunately a serious fall in the marginal efficiency of capital also tends to affect adversely the propensity to consume. For it involves a severe decline in the market value of Stock Exchange equities. Now, on the class who take an active interest in their Stock Exchange investments, especially if they are employing, borrowed funds, this naturally exerts a very depressing influence. These people are, perhaps, even more influenced in their readiness to spend by rises and falls in the value of their investments than by the state of their income. With a “stock-minded” public, as in the United States to-day, a rising stock-market may be an almost essential condition of a satisfactory propensity to consume . . . " The General Theory of Employment, Interest and Money p. 319.

One of the strongest forces driving the increasing propensity to consume has been the massive rally in the stock markets which has now run more than 3 years and looks ripe for more gains. Since consumption increases are essential to our economic recovery, criticizing Obama for Wall Street's recovery is simply ludicrous.

But then we are talking about the WaPo.
written by Fred Brack, April 15, 2012 2:26
Once again, Mr. Baker, your modest status disproves the adage that In the Country of the Blind the One-Eyed Man is King.

What you do prove, over and over again, is that the media are both largely ignorant of basic economics and innumerate -- afflictions that are also rife in government, particularly Congress.

Thought experiment: If the media got the basics of economics correct as well as the arithmetic, would the nation be better governed?
Dirk Bezemer
written by BT, April 15, 2012 5:18
Dear Dean,

Check out Dirk Bezemer at INET:


"President Obama is not a sop for the rich"
written by John H. McCloskey, April 15, 2012 6:28
After the first link, there are no others.

Happy days.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.