Commentary Magazine


Obama’s Inequality Prescription: Cronyism, Generational Theft, and Massive Debt

President Obama’s speech yesterday on inequality was a combination of the cynicism and panic that have governed his actions lately. Panic, because the speech was an obvious populist pep rally to distract from the massive economic disruptions his failing and flailing policies–at the moment, chiefly ObamaCare–are causing. And cynicism, because his opinion of his audience is low enough that he thinks the transparent ploy will work on them.

The pointlessness of the speech was clear when he said this:

Now, you’ll be pleased to know this is not a State of the Union Address.  (Laughter.)  And many of the ideas that can make the biggest difference in expanding opportunity I’ve presented before.  But let me offer a few key principles, just a roadmap that I believe should guide us in both our legislative agenda and our administrative efforts.

He’s giving them fair warning that he’s got nothing new to offer and his prescriptions will mostly consist of sloganeering–another chapter, in other words, of the bumper-sticker presidency. And that is indeed what followed. But there was also a noteworthy element to the speech: after five years of running the country, the president has developed no creative ideas and shown no willingness to think outside the conventional liberal box, even when those ideas are clearly failing.

For example, the president noted the importance of education, which is true, and then said this: “We know it’s harder to find a job today without some higher education, so we’ve helped more students go to college with grants and loans that go farther than before.” What the federal government’s loan program has done, as we know, is raise tuition prices even more and further inflate a bubble that puts the economy in more danger:

Federal Reserve Chairman Ben Bernanke dismissed these concerns by saying that most of the money in the student-loan sector is federal money, which just means taxpayers – rather than lending institutions – will take the initial hit. But the board of governors makes a salient point as student loan debt soars to $1 trillion and exceeds the nation’s level of credit-card debt.

“The bankers said student lending shares features of the housing crisis including ‘significant growth of subsidized lending in pursuit of a social good,’ in this case higher education instead of expanded home ownership,” according to that Bloomberg report. “The lending has put upward pressure on tuition, just as the mortgage lending boom led to rising home prices, they said, calling both examples of a ‘lack of underwriting discipline.’”

For my entire life, I’ve heard policy makers insist that there is insufficient funding for education and that getting a college degree is the pathway to a better life. But as the bankers noted, the sea of student-loan money artificially boosts the cost of tuition, which creates a new cycle of indebtedness by students. Higher tuition makes “pay-as-you-go” a less-likely option.

The president also returned to a recent hobbyhorse, the minimum wage. Here, he unintentionally hurts two of his main targets of relief, students and workers, in one shot. Obama said:

And as we empower our young people for future success, the third part of this middle-class economics is empowering our workers.  It’s time to ensure our collective bargaining laws function as they’re supposed to — (applause) — so unions have a level playing field to organize for a better deal for workers and better wages for the middle class. …

And even though we’re bringing manufacturing jobs back to America, we’re creating more good-paying jobs in education and health care and business services; we know that we’re going to have a greater and greater portion of our people in the service sector.  And we know that there are airport workers, and fast-food workers, and nurse assistants, and retail salespeople who work their tails off and are still living at or barely above poverty.  (Applause.)  And that’s why it’s well past the time to raise a minimum wage that in real terms right now is below where it was when Harry Truman was in office.

But empowering union members isn’t the same as empowering workers. In many cases, it’s the opposite. Raising the minimum wage prices certain workers out of some industries, further cementing employed union workers’ job security at the expense of those on the lower rungs of the workforce. In other words, the president will reduce employment to reward his campaign allies. This is cronyism dressed up as moral governance, and it’s both shameful and par for the course for elected Democrats.

And it gets worse. Unions whose workers don’t make minimum wage support the president’s minimum wage hike for another reason. As Richard Berman explained in the Wall Street Journal when Obama last floated a push for a minimum wage hike: “The labor contracts that we examined used a variety of methods to trigger the increases. The two most popular formulas were setting baseline union wages as a percentage above the state or federal minimum wage or mandating a flat wage premium above the minimum wage.”

So hiking the minimum wage can automatically reward Obama’s union allies in a number of ways. And of course empowering unions, especially through some of the prevailing collective bargaining frameworks, can also harm students. State-negotiated union education contracts aim for a degree of wage and benefit parity, which can be affordable (though often still unnecessary) for some school districts but plainly outrageous for others. The wages and benefits can’t be cut when budgets fail, so students lose out on books, computers, after-school activities, tutors–anything that doesn’t impact the unions but quite obviously detracts from the students.

Cronyism, generational theft, and massive debt are what the president has to offer on the economic front. He should be glad the speech flew under the radar.

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