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Home Publications Blogs Beat the Press President Obama Misrepresents Role of Government: It Has Promoted Inequality

President Obama Misrepresents Role of Government: It Has Promoted Inequality

Thursday, 05 December 2013 08:32

The Washington Post should have found someone who would have pointed out President Obama's misrepresentation when it quoted him saying:

“Government can’t stand on the sidelines in our efforts [to reduce inequality and increase mobility], because government is us. It can and should reflect our deepest values and commitments.”

Of course government has not been on sidelines, it has pursued policies that increase inequality. There are a long list that fall into this category including the bank bailouts of 2008-2010, too big to fail insurance for large banks, stronger and longer patent and copyright protection, and a trade policy that puts less educated workers in direct competition with low paid workers in the developing world, while largely protecting the most highly paid professionals, like doctors, from the same sort of competition.

However the biggest way in which the government has promoted inequality is by running budgets that lead to large scale unemployment and underemployment. Just as the decision to deliberately use fiscal policy to stimulate the economy and create jobs is a policy choice so is the decision to run smaller budget deficits, thereby reducing growth and employment. The government is currently following the latter policy denying work to millions of people. Also, since the bargaining power of workers in the bottom third of the labor market depends hugely on the level of unemployment, the high unemployment policy is also reducing their wages.

Comments (15)Add Comment
Patrick Obama Henry 2013: Give Me Liberty From Free Markets or Give Me Death
written by Last Mover, December 05, 2013 10:12

Exactly. In their hatred of legitimate free markets that would wipe them off the economic map, economic predators are the real welfare queens wholly dependent on government to uphold their extraction of economic rent from Americans with extortion pricing, thus increasing the very inequality they blame on "government".

Conversely, in their hatred of government that successfully replaces failed markets in areas like Social Security and Medicare, economic predators are also the real welfare queens, imposing highly inefficient privatized alternatives designed again, to extract economic rent on their behalf to increase inequality - not reduce it.

Give the economic predators the freedom and liberty they crow about every day. Yank their protectionist privileges from government behind which they hide as they preach free market competition for everyone except themselves.

Then yank their monopoly market privileges in the private sector enabled by government inaction that looks the other way, refusing to regulate such monopolies to capture in many cases, huge efficiency gains of natural and network monopolies for the benefit of consumers rather than owners.

Not in our lifetime will this happen. Not as long as stooge Presidents like Obama still carry water for economic predators despite representing the "other" side, playing the dumb down zero-sum redistribution distraction game with taxes about who should get what from a fixed economic pie ... throwing in a nod and wink to "opportunity" for the 99% because it's an elephant in the room Obama can no longer ignore.

Elizabeth Warren for President!
written by Brett, December 05, 2013 11:21
Elizabeth Warren for President? You'd just be getting another round of Obama.

How about Dean Baker for President?!
written by Avante Guard, December 05, 2013 12:14
Policies to increase investment invariably increase inequality (because it is the rich who have the resources to invest.)

You can not endorse increasing investment and condem inequality without being inconsistent.
written by g, December 05, 2013 1:25
Let corporate america have its immigration bill.."we don't have enough labor" you know?

written by Perplexed, December 05, 2013 1:28
-"The government is currently following the latter policy denying work to millions of people. Also, since the bargaining power of workers in the bottom third of the labor market depends hugely on the level of unemployment, the high unemployment policy is also reducing their wages."

The government has been following these policies for 100 years now and denying suppliers of the commodity "labor" from the protections afforded under anti-trust laws. If you read Section 6 of the Clayton Anti-Trust Act of 1914 you’ll see that “The labor of a human being is not a commodity or article of commerce…” No other “commodity” is listed except for the “commodity” of the 99%. This was ostensibly included to protect labor unions, but with the subsequent decline in the power of labor unions, its only practical significance now is the other real objective of wording it this way: to prevent those engaged in the “production” and sale of this “commodity” (labor) from the anti-trust protections that apply to all other commodities. This precludes those engaged in the sale of labor from the protections afforded under Section 2,3, 4, 15 or any other provision of the Act.

No “soybean” producers are ever compelled to allow their product to “rot” in the field while other producers engage, totally unimpeded, in transactions at a higher price than he would sell his product for, while his soybeans “rot.” If they do, he can sue them and collect treble damages (section 4). This price fixing has been going on under this special exemption for almost 100 years now and few, if any, economists take any exception to it or even call attention to it. Instead of discussing how unemployment is “created” by this exemption, economists treat it as some sort of “natural phenomenon” that is somehow “market based.” While they apply their sophisticated models (like "sticky prices"),and measurements (like the "Phillips Curve) to analyze the effects of this market manipulation, millions of victims suffer the consequences without recourse. And then these same economists ask to be treated with the respect and deference that we give to real “scientists.” Evidently the term hypocrisy has no real meaning within economic "science." Go figure.

"Equal protection under the law" is merely words on paper, it has no practical significance without enforcement. The term "labor market" is an oxymoron, it should be called a "coercion market" to accurately convey its real purpose.
government spending creates inequality...almost be definition, Low-rated comment [Show]
written by Last Mover, December 05, 2013 7:06
In a full employment economy, government spending increases demand, putting upward pressure on prices. This reduces real wages. Firms hire more folks at the reduced real wages. Similar inequality is generated by Keynesian monetary policy, such as in Yellen's research, also designed to lower real wages.

This makes no sense. Getting to full employment is different than being there. No one says government should continue to spend beyond full employment to intentionally create demand pull inflation and reduce real wages.

When moving to full employment, employers are forced to compete for labor and real wages rise regardless of whatever the underlying rate of inflation or deflation happens to be. Employers can't hire "more" labor at "reduced real wages" or any other wage at full employment, unless more enter the labor force, and people are not going to do that if real wages are falling instead of rising.

Keynesian spending to get to full employment as occurred in WWII, was a necessary but not sufficient condition to get to a low point of inequality in 1968. It certainly wasn't the other way around to cause more inequality. What, you think having a job at a lower real wage is less equal than not having a job at all?

Ever considered taking a writing class, or perhaps writing for Fox News instead?
written by David, December 05, 2013 7:45
government spending creates inequality...almost be definition
written by pete, December 05, 2013 3:59

Wrong. Spending creates inequality, almost by definition. But also inequality creates spending, almost by definition too. And east is east and west is west. The government has no special role in this other than holding the biggest purse around and being able to fill that purse at will (almost by definition!), as necessary. Why leave out the biggest consumer around? Just ask that consumer to stop spending money on roses for banksters/insurers/pharma/healthcare-providers and start spending it on something useful, like working roads or sustainable energy technology development.
written by liberal, December 06, 2013 8:13
However the biggest way in which the government has promoted inequality is by running budgets that lead to large scale unemployment and underemployment.

No, the biggest way government has promoted inequality is by not taxing away economic rents on behalf of the populace, in particular land rent, which alone is 10--20% of GDP.
written by liberal, December 06, 2013 8:17
pete wrote,
1968 was peak equality per Gini curve in US. What followed was...

Man, you really do luv yourself some post hoc ergo propter hoc, doncha.
Of doctors' cars, doctors training, and inequality created by government
written by Rachel, December 06, 2013 10:12

If I may repeat a good story: before Medicare, the Buick was called "the doctor's car." After Medicare, it was the Mercedes.

Of course we would expect some spike in earnings after demand was increased. But the spike became a new plateau, allowed the costs of medical schools to go up.
Medicare taking over much of the cost of medical training also permitted a price rise. (Medical students having great expectations of higher earnings was no doubt another factor.) It's been many many years now that reasonable people have been complaining that the first two years of medical school, in particular, don't need to cost as much as they do.

Thus clumsy, wasteful government intervention in the medical market allowed prices of training to rise. And when Medicare choose to not allow increases in the number of medical residents, the numbers were effectively capped.

This naturally contributed to higher salaries and fewer chances for lower income students to work their way up.
(The lure of high salaries made it more worthwhile, I suspect, for privledged but less-than-brilliant students to invest in outcompeting the bright underclasses.)

And so it is hard to find a country in the OECD with fewer physician per 1000, despite the high number of MDs imported into the US. France has 40% more MDs per 1000 than we do(according to World Bank data). Germany has 50% more. And they live longer and spend less ... their governments having put less effort into creating medical inequality.
written by Greg, December 06, 2013 10:56
Hi Dean, I realize this is sort of tangential to your point above, but I often hear two arguments from people who try to rationalize higher doctors' salaries in the US.

One is that medical training in the US is significantly more expensive than it is in Europe (although I realize part of this may be because of protectionism leading to high instructor salaries). The other argument I hear is that US doctors pay much higher malpractice insurance premiums.

Just wondering how you think this factors into the analysis. Thanks very much.
written by saurabh, December 06, 2013 2:42

Those are factors that might cause us to agree that doctors SHOULD be paid more in the US; they do not explain why doctors ARE paid more. Those two things are different. Like, we might agree that fast-food workers SHOULD be paid enough to clothe and feed their children, but because their labor bargaining power is so low, they are paid a wage far below what they need - there is a disconnect between what wages SHOULD be based on our moral expectations and what they are.

So, while American doctors might face higher education and malpractice costs, this does not explain why their wages are so high - that is the result of market forces, like their greater bargaining power through protectionism (as Dean has outlined many times).
written by Greg, December 06, 2013 4:07
Thanks saurabh,

I appreciate the thoughtful response and you make a great point. I realize those two things are different, but the point I was trying to make (which admittedly wasn't at all clear in my comment) is that there is some reason to think, according to some people, that US doctors aren't actually as advantaged as a quick glance at their pay might suggest, which then implies that this protectionism might have a smaller impact than it would seem (because there wouldn't be as much of a demand among foreign doctors to work in the US).
Full employment...
written by Mike Ballard, December 06, 2013 6:27
You won't get full employment in even freest market for labour power. Unequal access to wealth and political power is the logical outcome of the wage system.

You could get full employment with common ownership of the collective product of labour and with a system where the compensation is tied to social productivity i.e if one hour of labour time entitled the producer to access goods and services equal to what is produced in 50 minutes of labour, regardless of the particular skilled labour time an individual is contributing to the social store.

Where do the other ten minutes go? Replacement of the means of production and support for non-producers i.e. students, retired, sick and disabled.

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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.