The basic method of Obama’s speech yesterday was to point to a bunch of bad or putatively bad things and assert that they are in some vague way connected. It was the same method he used in his first state of the union address, in which it turned out that the root cause of the financial crisis and severe recession was our failure to have adopted cap-and-trade, sufficiently lavish higher-education subsidies, and national health care. Now the root cause is inequality.
As before, a certain imprecision is needed to carry the argument through. “Now, this kind of inequality — a level that we haven’t seen since the Great Depression — hurts us all. When middle-class families can no longer afford to buy the goods and services that businesses are selling, when people are slipping out of the middle class, it drags down the entire economy from top to bottom.” Well sure: But that’s not a problem of inequality per se; that’s a problem of middle-class income decline. You can have falling inequality and falling middle-class income, and probably have over the last couple of years; you can also have the reverse.
Obama also projects this argument about inequality backward in time. Speaking about an economic policy centered on tax cuts and deregulation, Obama said, “But here’s the problem: It doesn’t work. It has never worked. (Applause.) It didn’t work when it was tried in the decade before the Great Depression.” I read this as a suggestion that the Great Depression wasn’t the result of an extremely contractionary monetary policy (made worse by an increase in already-high tariff levels), but a result of tax cuts for the rich and a general tolerance for economic inequality in the 1920s. That view has had adherents, but it seems to me to be nuts. It also seems to me to shed some light on Obama’s curious lassitude about getting the Federal Reserve to restore a monetary equilibrium in 2009 and 2010: He was too busy trying to restructure a supposedly dysfunctional and unfair capitalism.
And it’s not the only bizarre reading of history in Obama’s speech. Toward the end of it he suggests that companies ought to create jobs in the U.S. rather than abroad, “not just because it’s good for business, but because it’s good for the country.” He continues in this vein for a while and then says, “That’s how America was built. That’s why we’re the greatest nation on Earth. That’s what our greatest companies understand. Our success has never just been about survival of the fittest. It’s about building a nation where we’re all better off. We pull together. We pitch in. We do our part,” etc. The flip side of all this inequality talk turns out to be an abject dependence on the patriotic sentiments of CEOs as the source of job growth. I suppose, though, that if people think that CEOs’ insufficient devotion to the country is the problem, they will be less likely to hold Obama responsible for doing his part to make this a better place to do business.