August 13, 2015

The 2016 Politics of Income Stagnation and Decline

America has a big incomes problem: The incomes of most Americans largely stopped growing around 2002.  Wide public resentment over that hard fact already dominates the 2016 debate.   On the Democratic side, income issues have been conflated with concerns about inequality, so every plan to cushion the impact on middle-class is financed by more taxes on the unworthy wealthy.  From the right, where the uber-wealthy, unworthy or otherwise, fund a flock of would-be presidents, income issues get mixed up with the dogma that most problems come from the corruption of liberal government and pollution of foreigners.  So, GOP plans for restoring rising incomes usually boil down to tax cuts, especially for the uber-wealthy, that tacitly blame the people who liberal government traditionally help, and threats to undocumented workers.

Both approaches have had only limited success.  Hillary Clinton understands that today’s inequality is the result, not the cause, of broad-based income stagnation and decline.  So, she can never outflank Bernie Sanders, who brings to their debate the fervent (if quirky) enthusiasm of a genuine socialist.   The GOP faces an even tougher challenge, since much of the party’s base blame their economic problems on a corrupt establishment that includes big business as well as big government, and the foreign labor they need or protect.   On this front, Jeb, Marco, Scott and even Ted and Rand will never outflank a self-assured¸ self-financed xenophobe like Donald Trump, or at least not until they can change the subject.

These half-baked responses are tailored for the base voters already fully engaged in the partisan wars.  They won’t be enough when the candidates have to address the majority of Americans, who care more about their jobs (and football teams) than about party posturing.   For the Democratic candidate, winning will depend on maximizing the support of women, minorities and young voters, while containing the disaffection of working class white men.  The Republican will face the opposite and tougher challenge – energize the support of working class white men while attracting more support from women, minorities and millennials.

My recent report from the Brookings Institution laid out some hard facts that will be in many voters’ minds.  Let’s consider households headed by people in their mid-to-late 30’s when each of the last five presidents took office.  Among such households that were headed by women, annual average income gains of 3.9 percent under Reagan and 5.8 percent under Clinton have been followed by much smaller progress, averaging 1.0 percent per-year under Bush and 2.0 percent per-year in Obama’s first term.

Most tellingly, consider households headed by people without college degrees, and which account for 70 percent of all households.  Among households headed by people in their mid-to-late ’30s when each president took office, and with only a high school diploma, their annual income gains averaged 2.6 percent under Reagan and 2.4 percent under Clinton.  But the comparable households under Bush experienced income losses averaging 0.3 percent per-year, followed by even greater losses averaging 1.8 percent per-year in Obama’s first term.

Similarly, households headed by Hispanics of comparable age when each president took office made annual income progress averaging 2.2 percent under Reagan and 3.1 percent under Clinton, which were followed by barely any gains at all, averaging 0.3 percent per-year under Bush and 0.1 percent per-year in Obama’s first term.

The country’s broad economic disappointment has energized the Tea Party and the Occupy movement, and it now animates the bases of both political parties.  The challenge for those who would be president is to bypass popular anger and partisan simplifications and present a serious agenda that can restore normal income progress.