Inequality Under Obama: Where Did The Money Go?

by Benjamin Studebaker

Today I’m continuing the Polished Politics series on YouTube. Here’s the new video:

If you prefer reading to viewing, the text version follows, complete with links to sources.

During the Obama administration, US economic growth rates have recovered and stabilized:

Obama GDP Growth


But according to data from the Economic Policy Institute, wages have been shrinking at the very same time, even for most college educated workers:

How can the economy be growing at 2% while most Americans continue to see declines in their inflation-adjusted wages? It’s not as if companies aren’t rolling in the big bucks—corporate profits have soared under Obama to their highest levels since World War II:

Stocks gained 142% during Obama’s first 2000 days in office. Since World War II, only Bill Clinton saw more stock growth:

So corporate profits are rising and stocks are rising with them, but this money isn’t being used to increase wages. Who is ending up with it?

When companies make money, there are two things they generally like to do with it:

  1. Use the money to expand production—this could mean hiring new workers directly or it could mean buying machines, facilities, or buildings made by other external workers.
  2. Give the money to executives and shareholders.

If a company thinks there is untapped demand or market share for its products, it is very likely that the company will use the money to expand production. If it doesn’t, competitors are likely to swoop in and take advantage. This inevitably increases the demand for workers, which should push wages up and allow everyone to share in the benefits of growth. But this hasn’t happened, which indicates that companies have no confidence that this untapped demand exists.

The figures bear this out. Inequality has continued to grow under Obama, which means the money is largely ending up in the hands of people who are already rich—people like executives and shareholders. Emmanuel Saez, an economist at the University of California Berkeley, estimates that in the first three years of Obama’s presidency, 95% of income gains went to the top 1% of earners:

Obama Inequality Saez


We can also see that while CEO pay was sharply reduced during the recession of 2008, it has been rising more or less continuously under Obama:

It’s not as if Obama hasn’t tried to do anything to share the prosperity around—in 2009, his American Recovery and Reinvestment Act spent nearly $800 billion in an attempt to put money back into the hands of workers and consumers. While this money did help bring an end to the recession, it didn’t provide consumers with enough stable, long-term income to convince companies that there’s a lot of untapped consumer spending out there.

After the 2010 election, Obama lost the House of Representatives to the republicans and it became impossible for him to enact any additional policies that might spread the money around. So we can’t just blame him—this failure belongs to the entire political system. After all, we are the ones who voted these guys in.

In theory, there are a lot of different things that could be done about this. A government that cared about this issue could reverse the decline in union membership, it could raise the minimum wage, it could make the tax system more progressive, it could increase spending on public services, and so on. But in practice, none of these things are likely. Republicans don’t care about wages or inequality, and as long as they control congress, nothing will be done at the federal level. Some are looking to Hillary Clinton to lead on this issue, but the Clinton record on it is very poor—inequality skyrocketed during the 90’s, and the 2008 recession had much of its roots in Clinton-era financial deregulation:

This means that realistically, most action would need to take place at the state level, but in most states, republicans have a sufficiently large presence to block action, regardless of democrats’ intentions:

So, to quote Dr. Seuss:

Unless someone like you cares a whole awful lot, nothing is going to get better. It’s not.