By Paul Krugman – New York Times.
There were two big economic policy stories this week that you may have missed if you were distracted by Trumpian bombast and the yelling of the Sanders dead-enders. Each tells you a lot about both what President Obama has accomplished and the stakes in this year’s election.
One of those stories, I’m sorry to say, did involve Donald Trump: The presumptive Republican nominee — who has already declared that he will, in fact, slash taxes on the rich, whatever he may have said in the recent past — once again declared his intention to do away with Dodd-Frank, the financial reform passed during Democrats’ brief window of congressional control. Just for the record, while Mr. Trump is sometimes described as a “populist,” almost every substantive policy he has announced would make the rich richer at workers’ expense.
The other story was about a policy change achieved through executive action: The Obama administration issued new guidelines on overtime pay, which will benefit an estimated 12.5 million workers.
What both stories tell us is that the Obama administration has done much more than most people realize to fight extreme economic inequality. That fight will continue if Hillary Clinton wins the election; it will go into sharp reverse if Mr. Trump wins.
Step back for a minute and ask, what can policy do to limit inequality? The answer is, it can operate on two fronts. It can engage in redistribution, taxing high incomes and aiding families with lower incomes. It can also engage in what is sometimes called “predistribution,” strengthening the bargaining power of lower-paid workers and limiting the opportunities for a handful of people to make giant sums. In practice, governments that succeed in limiting inequality generally do both.
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We can see this in our own history. The middle-class society that baby boomers like me grew up in didn’t happen by accident; it was created by the New Deal, which engineered what economists call the “Great Compression,” a sharp reduction in income gaps. On one side, pro-labor policies led to a striking expansion of unions, which, along with the establishment of a fairly high minimum wage, helped raise wages, especially at the bottom. On the other side, taxes on the wealthy went up sharply, while major programs like Social Security aided working families.
We can also see this in cross-country comparisons. Among advanced countries, the U.S. has the highest level of inequality, Denmark the lowest. How does Denmark do it? Partly with higher taxes and bigger social programs, but it starts with lower inequality in market incomes, thanks in large part to high minimum wages and a labor movement representing two-thirds of workers.
Now, America isn’t about to become Denmark, and Mr. Obama, facing relentless opposition in Congress, has never been in a position to repeat the New Deal. (Even F.D.R. made limited headway against inequality until World War II gave the government unusual influence over the economy.) But more has happened than you might think.
Most obviously, Obamacare provides aid and subsidies mainly to lower-income working Americans, and it pays for that aid partly with higher taxes at the top. That makes it an important redistributionist policy — the biggest such policy since the 1960s.
And between those extra Obamacare taxes and the expiration of the high-end Bush tax cuts made possible by Mr. Obama’s re-election, the average federal tax rate on the top 1 percent has risen quite a lot. In fact, it’s roughly back to what it was in 1979, pre-Ronald Reagan, something nobody seems to know.
What about predistribution? Well, why is Mr. Trump, like everyone in the G.O.P., so eager to repeal financial reform? Because despite what you may have heard about its ineffectuality, Dodd-Frank actually has put a substantial crimp in the ability of Wall Street to make money hand over fist. It doesn’t go far enough, but it’s significant enough to have bankers howling, which is a good sign.
And while the move on overtime comes late in the game, it’s a pretty big deal, and could be the beginning of much broader action.
Again, nothing Mr. Obama has done will put more than a modest dent in American inequality. But his actions aren’t trivial, either.
And even these medium-size steps put the lie to the pessimism and fatalism one hears all too often on this subject. No, America isn’t an oligarchy in which both parties reliably serve the interests of the economic elite. Money talks on both sides of the aisle, but the influence of big donors hasn’t prevented the current president from doing a substantial amount to narrow income gaps — and he would have done much more if he’d faced less opposition in Congress.
And in this as in so much else, it matters hugely whom the nation chooses as his successor.