Obama’s Middle Class Economics 2.0: Inequality Worries Elites but Record Shows Change Won’t Come from the Top

by Bastiaan van Apeldoorn


Debating inequality is all the rage, and, increasingly  also amongst the world’s power elites. It was a theme of this year’s gathering of the global corporate elite in Davos, just like it already was last year. And this was already before the English translation of Picketty’s book on growing wealth inequality made such a splash. Indeed that book only amplified an already strong trend. Inequality is a hot topic, not in the last place among those who sit at the very top of the pyramid. And these worries about inequality are genuine if only for the worry that revolt – and hence a direct threat to the wealth and power of the  infamous one per cent (and even more so of the 0,1 and 0,01 per cent) – is always more than a theoretical possibility, especially if rising inequality takes place in the context of what has become a regime of permanent austerity in many advanced capitalist countries. Next to that there are those more enlightened intellectuals of the ruling class, especially of a more Keynesian persuasion, who realise that with persistent stagnant or falling real income of most working people the problem of insufficient demand will have to come haunt the owners of capital at some point (that is at the point when not enough people, even in China, will keep on buying the stuff produced).

In the world’s most powerful economy, and the most unequal of the advanced capitalist societies (where median family incomes have actually fallen in the last 15 years while the income share of the 1 per cent skyrocketed), inequality has also a been persistent theme of Obama’s presidency. Obama’s State of the Union last month was another case in point. Unveiling what he called, ‘middle-class economics’ as the basis of his proposed economic policies, Obama, promoted  ‘the idea that this country does best when everyone gets their fair shot, everyone does their fair share, everyone plays by the same set of rules’, and rhetorically asked ‘Will we accept an economy where only a few of us do spectacularly well?  Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?’.

However, though some media portrayed it as a sharp turn to the left, unveiling a decidedly ‘liberal’ agenda confronting the new Republican majority in both houses of Congress head on, Obama’s ‘middle class economics’ – will there even be a US president who will talk about the needs and interests of the lower classes? –in fact offers a continuation of a discourse that has been in place since the start of his presidency. Thus in for instance his state of the union address of three years ago Obama called for an economy in which ‘everyone gets a fair shot’ rather than an economy ‘weakened by outsourcing, bad debt and phony financial profits’. New this year would be what has been dubbed  be a “Robin Hood-style” plan – which Obama knows will never pass Congress – to raise capital gains tax from 25 to around 28 per cent, the level it had under Ronald Reagan. Although welcome, this would be at best a mild correction of a redistribution from working classes to the top that has been taking place in the past three decades.

 

Even if  efforts to mildly mitigate wealth and income disparities might be seen as a rational concession on the part of ruling elites, as the Obama administration itself admits (but blaming only Republican obstructionism in Congress) fact is that inequality under Obama has only risen with an estimated 95 per cent of the income gains during the first three years of the so-called recovery since 2009 accruing to the top 1 per cent, as recent research by Emmanuel Saez shows.

What then explains this lack of apparent success? Is it just a matter of a Tea Party-dominated GOP being unwilling to carry out even in the smallest part of Obama’s agenda? Or is it only cheap talk anyway, political rhetoric triggered by the electoral need for a populist appeal to middle class interests and masking contrary policies? Analysis shows that it runs deeper than that. Many of the policy ideas that Obama has been promoting, such as that of a more broad-based growth to favour the middle class, were in fact already promoted within certain elite think tanks and policy planning bodies years before Obama was elected but many of whose elite planners later ended up in his administration. One such think tank is for instance the Hamilton Project (part of the Brookings Institution), founded by Clinton’s quintessential Treasury secretary and the doyen of America’s financial elite, Robert Rubin, and overall closely networked with Wall Street and other corporate elite interests. In these circles the growing gap between the haves and the haves-not was a serious concern years before Picketty raised it, but, as indicated, precisely because one feared an anti-free trade and anti-free market backlash as a result. In this sense, it was and still is more than rhetoric.

Nevertheless while a Republican-dominated Congress might certainly be partly to blame it is questionable whether even with a fully Democratic Congress under the Obama administration the trend towards widening inequality would have significantly slowed, let alone reversed. The deeper problem is that even if Obama and his advisors are convinced that some more significant correction of ‘the system’ is needed, they – as well as the global elite meeting in Davos– remain at the same time wedded to the kind of neoliberal policies which have enabled the corporate capitalist class to thrive at the expense of the ‘middle classes’. The policies proposed in response to the ‘inequality problem’, then,  leave all the basic structures and concomitant interests of America’s highly unequal society remain untouched. So, Wall Street is supposed to behave itself a little bit better and some regulations have been put in place to that effect, but financialisation and the huge ‘phoney profits’ that Obama spoke of in fact go on unabated. At the international level, the global free trade and investment agenda, clearly serving the interests of transnational capital much more than any ‘middle classes’, also continues to be zealously promoted by Washington’s policy-makers. Indeed, Obama’s push for the trade initiatives of TTP and TTIP – another theme of his latest State of the Union – might be the most telling indication of a continuation of an economic policy in which the interests of transnational capital trump those of the rest of society.

Ultimately, Obama’s middle class economics –  far from being a radical, socialistic agenda, as in the hyperbole of his opponents from the right – is in fact above all aimed at preempting rather than promoting radical redistributive reform or other policies that would break with the commitment to market-based solutions, ‘fiscal discipline’ (i.e. austerity), and a global free trade and investment agenda further entrenching the power of global corporate capital. 

For those of us who see inequality as making the idea of a more socially just, more democratic and more sustainable society only more distant, the fact that everyone now talks about inequality and many, also among those who are part of or closely aligned with powerful elites, recognise it to be a problem, is at least encouraging and opens up a window of opportunity. But it will have to be others than the elites jumping through that window. In other words, we will have to move from Obama’s ‘yes we can’ to for instance Spain’s Podemos, which is a literal translation of Obama’s slogan and of course the name of the political movement and now political party in Spain that hopes to be able to copy the electoral success that Syriza had in Greece very recently. Indeed the latter’s coming to power is a much more significant event in the global struggle against growing inequality and social injustice produced by neoliberal policies (in this case above all those emanating from Brussels and Berlin) than any of Obama’s speeches, which decry inequality but at the same time defend many of the policies that are contributing to it. It is good that the elite is talking about  inequality, but real change will have to come from below. In the US however such change for now does not appear to be in the offing.

This blog post partly draws upon an article co-authored by Naná de Graaff entitled ‘Obama’s economic recovery strategy, open markets and elite power: business as usual?’ and forthcoming in a Special Issue of International Politics on Elites and American Power edited by the four board members of EPIC