(Brian Dickerson/Detroit Free Press) - President Barack Obama has called income inequality "the defining issue of our time," and his State of the Union on Tuesday is expected to detail his proposals for narrowing the earnings gap between middle-class Americans and the country's wealthiest households.
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The Q&A below explains how income inequality has taken center stage in Obama's second term.
Question: Why is Obama so fixated on the difference between the middle class and the very rich? Hasn't that disparity been a fact of life in this country forever?
Answer: Yes and no.
A minority of Americans have always owned a majority of the nation's wealth and earned a hugely disproportionate share of its income.
But for nearly half a century between the Great Depression and the late 1970s, the percentage of the nation's income that went to the wealthiest Americans either shrank or remained constant.
By the time President Ronald Reagan took office in 1980, the income gap between the rich and the middle class had been narrowing for so long that most economists considered that convergence a hallmark of healthy industrial societies.
They assumed that the wealthiest people in the U.S. and other developed countries would continue to get richer. But they also predicted that the incomes of lower- and middle-class wage-earners would rise at the same or even faster rates, accelerating what some called the Great Compression.
Q: Why did middle-class incomes grow so quickly?
A: Historians and economists credit the establishment of a federal minimum wage, the labor shortage spawned by World War II, and the labor movement's strength in the post-war years. An exploding international market for manufactured goods, expanded educational opportunities for returning veterans and a growing demand for educated workers also boosted middle-class wages.
Q: But the Great Compression didn't last?
A: In fact, it reversed course.
In 1979, after shrinking or holding steady for nearly 50 years, the earnings gap between those in the middle and those at the top began to widen.
In the more than three decades since, Americans in the top 5% income bracket have seen their share of the nation's total income grow even as everyone else's shrunk.
The trend has been even more pronounced at the tippy-top: Between 1979 and 2008, the wealthiest 1% of U.S. households saw their average income almost triple, while the income of households in the middle fifth rose only 25%.
Q: Has this reversal been unique to the U.S.?
A. No. A global trade group, the Organisation for Economic Co-operation and Development, discovered growing income disparities in two-thirds of the two dozen industrial democracies it surveyed in 2008.
But the U.S. leads all those countries in both the magnitude of the income gap between middle-class and wealthy households and the rate at which that gap has been growing.
Q: Why is income inequality a bad thing?
A: It isn't, up to a point.
In a free-market economy, some inequality is necessary to incentivize innovation, specialization and hard work. If everyone earned the same thing, fewer people would pursue advanced training, work weekends, or seek ways to build a better mousetrap.
"Some monasteries and convents and communes may have complete equality," Charles Ballard, a professor of economic at Michigan State University, observes, "but no large society does."
Q: So if some income inequality is good, why is growing inequality bad?
A: "Henry Ford had the original insight into this when he decided to pay his workers more than market rate for their labor," says Darrell West, founding director of the Center for Technology Innovation at the Brookings Institution. "He knew he needed customers."
The U.S. economy needs a large and diverse consumer class to sustain robust economic growth. And persistent or growing disparities in income stoke political upheaval.
"History is littered with societies that became so unequal that they suffered civil unrest," Ballard notes. "That's especially true when there isn't a lot of income mobility, which is the case in the U.S."
Q: Wait a minute. Middle-class folks may be struggling as a group, but didn't a lot of today's billionaires spring from humble beginnings? Doesn't the U.S. still offer talented people who are willing to work greater opportunities for social mobility than almost any other country?
A: In "The Great Divergence," his critically acclaimed 2012 study of income inequality in the U.S., Timothy Noah notes that most Americans continue to believe their country offers unparalleled opportunities for social mobility. But, Noah says, the available data suggest that our country "is no longer, by international standards, a land notably rich in opportunities to move up the economic ladder."
Only 6% of Americans born in the bottom fifth of income distribution ever make it to the top fifth, Noah points out. Who your parents are is a better predictor of your adult income than of your adult height and weight.
Meanwhile, countries that have invested more heavily in education and public infrastructure (a group that includes nations as different as Germany and China) boast higher rates of economic mobility.
Q: Could income inequality be an anomaly that will eventually diminish all by itself?
A: Some economists think the divergence of U.S. incomes may be a blip rather than a long-term trend, just as a handful of climate scientists remain skeptical about global warming.
But most economists and policymakers across the political spectrum now concede that the middle class is losing ground, and that the trend could threaten the political stability of our country unless future economic growth is more broadly shared.
Q: In there a consensus on who or what is responsible for the acceleration of income inequality?
A: To some extent. Expanding trade with low-wage nations and the off-shoring of middle-class manufacturing and service jobs, have certainly played important roles. So has the accelerating pace of technological change, which has magnified the premium employers are willing to pay for workers with college or graduate training.
Beyond that, theories of causation tend to diverge along partisan lines.
Q: What do Republicans blame for income inequality?
A: Excessive taxation, deficit spending and government regulations that they believe discourage investment and economic growth.
Reduce all three, Republicans argue, and the resulting economic growth will generate dividends for everyone, especially the hardest-working members of the middle class.
Q: And Democrats?
A: Obama and most lawmakers in his party think diminishing support for higher education and fiscal policy that favors deficit reduction over full employment are chiefly responsible. They also blame Republicans for legislation that has weakened the labor movement, noting that the decline in union membership almost precisely tracks the declining share of U.S. income earned by the middle 60%.
Q: What will Obama prescribe to reverse that trend?
A: The White House has increasingly taken a populist line, seeking to reverse spending and tax policies that it is convinced have favored the wealthiest Americans at the expense of everyone else.
Obama will argue for government intervention to balance the scales by extending federal unemployment benefits and raising the federal minimum wage, which Democrats say will boost pay and stimulate consumption across all income groups.
Many Democrats think the government should go even further, investing heavily in infrastructure improvements and job-training efforts designed to boost employment even if it means raising taxes on the wealthiest Americans.
Tuesday's State of the Union address may reveal how Obama intends to mediate the tension between Democratic lawmakers who favor a frontal assault on Republican austerity and those who would like to temper economic stimulus measures with deficit reduction and long-term reductions in entitlement spending.