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Why Obama can't (and shouldn't) close the income gap

President Obama's recent comments about income inequality have reignited the debate over whether the government can help reduce it. But even if the government can take on income inequality, should it? 

By Robert FrankCNBC / September 17, 2013

President Obama speaks about the economy in the South Court Auditorium on the White House complex, Monday, Sept. 16, 2013, in Washington.

Carolyn Kaster/AP


President Obama's recent comments about income inequality are providing more fuel to the debate over whether the government can really do anything to reduce it, but perhaps the bigger question is, Do voters really want it to?

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"I think the president can stop it," Mr. Obama said Sunday on ABC's "This Week" when asked about the top 1 percent capturing most of the country's income gains. The problem, he said, is that "you've got a portion of Congress whose policies … just want to, you know, leave things alone. They actually want to accelerate these trends."

It's easy to blame the other party for deeper economic problems, of course. But the president's comments are on the minds of economists and policymakers.

Many argue that inequality is an unavoidable byproduct of growth – a function of investors and entrepreneurs benefiting from successful demand for their products and value creation in financial markets. Inequality rose quickly during economic expansions (1980s and '90s) and declined during the most recent recession. In other words, the wealthy gain more during good times and lose more during bad times.

But recent data suggest that the recovery has so far favored the rich, largely because of the run-up in stocks. New data from Emmanuel Saez at the University of California, Berkeley found that the top 1 percent captured 95 percent of the gains during the recovery.

In a paper titled "Why Hasn't Democracy Slowed Rising Inequality?," four political scientists asked why voters haven't forced politicians to close the gap between the rich and the rest. Adam Bonica of Stanford, Nolan McCarty of Princeton, Keith T. Poole of the University of Georgia, and Howard Rosenthal of New York University cited several reasons.

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