Tuesday, December 20, 2011

Obama is trying to beat the war drums of class warfare to get elected, but the electorate is too smart.

Graph of US quarterly data (not annualized) from 1947 through 2002 estimates a form of the difference version of Okun's law: %Change GNP = .856 - 1.827*(Change Unemployment Rate). R^2 of .504. Differences from other results are partly due to the use of quarterly data.

Charles Lane's Op Ed in the Washington Post entitled "Obama's simplistic view of income inequality" very much soft pedalled the issue.  It is patently obvious to me that Obama knows his only hope for re-election is to fan the flames of class warfare: it's unfair for someone to have more than you do.  He fired the opening salvo in Osawatomie, Kansas on December 6.  His logic is simple.  If the majority of the electorate is below the median income line, then promise that you will take away from the (fewer) people above the median income line.  Easy math shows that he is trying to buy the votes of the greater number at the expense of the lesser number.  Lane kind of skirts that issue, but he correctly postulates that the Majority of Americans are Okunites and  cites recent polling by Gallup that showed the majority of the people don't care how well the upper echelons of the income brackets do as long as they prosper too:

Maybe Americans are Okunites — as in Arthur Okun, the late Yale economist and author of the 1975 book, “Equality and Efficiency: The Big Tradeoff.”
Okun saw free markets as a source of unparalleled human progress — and of big gaps between rich and poor. Indeed, he argued, markets are efficient partly because they distribute economic rewards unevenly. Government should try to smooth out income stratification, but such efforts risk undermining incentives to work and invest.
Hence the “big trade-off”: channeling income from rich to poor, Okun wrote, was like trying to carry water in a leaky bucket. He wanted to move money from rich to poor without “leaking” so much economic growth that the whole process became self-defeating.
The American public intuitively shares Okun’s concerns. Consider the responses to another question in the Gallup poll. Asked to rate the importance of alternative federal policies, the public saw both economic growth and redistribution as worthy objectives — but put the former well ahead of the latter. Some 82 percent said growth was either “extremely” or “very” important; only 46 percent said “reduc[ing] the income and wealth gap between rich and poor” was “extremely” or “very” important.
In short, the public wants fairness but retains a healthy skepticism about the federal government’s ability to achieve it.

I'll put it another way.  I don't care if the top 1% pay no taxes if my real net income goes up along the way.  Apparently, most Americans agree with me.

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