U.S. Income Inequality Threatens American Dream

by John M. Curtis
(310) 204-8700

Copyright December 11, 2013
All Rights Reserved.                                      

             Urging Congress to increase the minimum wage, President Barack Obama has a tough sell in the budget-conscious divided Congress.  While Congress can’t wait for Christmas vacation, Obama insists the growing gap between rich and poor continues to get worse.  “I believe this is the defining challenge of our time,” said Obama, hoping to get Congress to back an increase in the minimum wage before year’s end.  “It drives everything I do in this office,” said Obama, referring to improving the standard-of-living for struggling workers.  It’s one thing trying to give workers a leg up, it’s still another to implement inflationary policies that could have far-flung consequences on the economy.  Increasing the minimum wage has been positively correlated with increases in unemployment, where businesses hire less employees to do more work.  With unemployment dropping to 7% and Third Quarter Gross Domestic Product hitting 3.6%, the economy keeps rolling along.

Asking for an increase in the federal minimum wage might be problematic giving that businesses are being hit with higher health care costs under the president’s plan known as Obamacare.  Republicans aren’t inclined to give Obama what he wants, especially in advance of next year’s Midterm Elections.  “The president’s economic policies promote government reliance rather than economic mobility,” said House Speaker John Boehner’s (R-Ohio) spokesman Brendan Buck.  Yet the House Speaker doesn’t acknowledge the uncanny economy growth under Obama, reducing the unemployment rate and federal budget deficits, now at the lowest levels since 2008.  There are always strings attached to increasing the federal minimum wage, including inflationary pressures to business.  Republicans officials, including House Budget Chairman and former VP candidate Paul Ryan (R-Wis.), don’t acknowledge undeniable economic growth under Obama.

Making his case to increase the minimum wage, Obama points to lower budget deficits, higher GDP and steady stock market growth.  Obama believes that increasing the minimum wage would help reduce the disparity between the working poor and the middle class.  Adding another 203,000 jobs in November, the economy beat expectations, continuing to drop the nation’s unemployment rate.  With the Federal Reserve Board continuing to buy $85 billion worth of treasuries a month, the recent rise in GDP and lower unemployment rate could spell the beginning of the dreaded “tapering,” bound to drive up short and long-term interest rates.  Raising the minimum wage now could trigger and economic slide that hurts the economy heading into 2014.  Republicans aren’t likely to give Obama anything to crow about heading into next year’s elections.   “Rather that tackling income inequality by liftin  people up, he’s been fixated on taxing some down,” said Buck.

Republicans can’t have it both ways:  Complaining about the economy when all government-published economic data show decisive progress.  While there’s a time-and-place to raise the federal minimum wage, there’s also a point for the GOP to face economic reality:  Obama has improved the U.S. economy.  It’s one thing to disagree about increasing the minimum wage still another to pretend the economy hasn’t improved under Obama.  Whatever an increase the minimum wage would do to the economy, it would certainly reduce the disparity between the working poor and middle class.  Complaining or promising to repeal Obamacare didn’t work well for former Mass. Gov. and GOP presidential candidate Mitt Romney in 2012.  Romney and Ryan’s message fell flat because all reliable economic facts contradicted their campaign speeches.  Criticizing Obamacare or the website won’t convince too many voters that the economy’s gone flat.

Recent economic reports have indicated the American Dream of upward mobility has been exceeded in Canada, the U.K. and other European countries.  “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream,” said Obama, saying nothing about how increasing the federal minimum wage would improve the so-called American Dream.  Increasing unit-labor costs could put inflationary pressure on the Fed to move more quickly to end QE3 [quantitative easing] or hike the federal funds rate.  If there’s going to be any long-term, meaningful economic recovery, Wall Street must be driven by corporate earnings—something usurped by increased labor costs.  Neither political party reads the economic tea leaves accurately:  Keeping profit-margins and earnings up is the only real fix to the U.S. economy.  Robbing Wall Street of earnings by raising the federal minimum wage could harm economic growth.

Instead of raising the federal minimum wage, Obama should look at more tuition relief for college students.  Over the long haul, improving access to education should help lessen the wage inequality gap by improving the income potential of more people.  Today’s  inflated education costs have discouraged countless numbers of eager college students from completing their degrees or moving on to graduate education.  “The opportunity gap in America is now as much about class as it is about race,” said Obasma, “and that gap is growing,”  Tinkering with the federal minimum wage may be a necessary evil at some point.  But reducing the “inequality gap” between the lower and middle class is more about education and less about higher wages in part-time, temporary jobs.  Lowering interest rates on student loans and increasing federal education grants would go a long further to improve the American Dream more than hiking the federal minimum wage.

 John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.