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? 

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

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?

"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.

First, they said, both parties have embraced free-market capitalism, which they say benefits those at the top. Second, they said, changes in immigration and voter turnout mean the voting population is now skewed toward the wealthy.

They said rising overall wealth in the country has made part of the population less reliant on government. The rich have also used their resources to "influence electoral, legislative, and regulatory processes," and the political process is now distorted by gerrymandering.

The authors assume that most Americans see inequality as a leading problem. But they may not – and they may not understand the statistical extent of the problem.

A 2012 survey from GlobeScan found that 58 percent of Americans agreed with the statement that "the rich deserve their wealth."That's actually higher than it was in 2008, before the economic crisis, Wall Street bailouts and the "Occupy" movement.

An earlier Gallup poll found that the number of Americans who want inequality to be "fixed" has declined since 1998. In 1998, 52 percent of Americans wanted the gap between rich and poor to be fixed. Today 48 percent say so.

A majority of Americans said that inequality is "an acceptable part of our economic system," a number that has also increased since the late 1990s.

What's more, Americans dramatically understate their perceived level of inequality. When asked about the share of wealth held by the top 20 percent, most Americans were way off (they said 59 percent; it's closer to 85 percent).

So, yes, government could do more to offset inequality. But voters – whether out of poor understanding or personal aspiration – don't seem to be pressing the issue as much as the president would imply.

—By CNBC's Robert Frank. Follow him on Twitter 


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