What Obama Missed?

President Obama used his State of the Union address to argue that rising levels of inequality are undercutting the promise of America. He said “we can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.” The concrete proposal was modest tax reform. It’s not fair that Warren Buffet and Mitt Romney have tax rates half the size of the people that work for them. True enough. CEO pay has skyrocketed as average wages have fallen. But there’s actually much more at stake and a need for a larger policy response.

The growing concentration of wealth is bad for our democracy. It tips the playing field and leads to monopoly power cuts off competition and short-circuits innovation. It also means there are fewer resources available for everybody else to deploy, which makes it harder for striving families to move up the economic ladder. Upward mobility in America is too limited, and is lower than it is in other developed countries. It is particularly difficult for those born into families living in poverty. A poor child has a less than one-in-five chance of ending up in the top 40% of earners (roughly $50,000). Obama missed a chance to articulate a policy agenda focused on helping people move up and out of poverty. Access to a good education and good jobs is a start, but it isn’t enough. To make the upward climb, we know that families must be able to save and build up some pools of assets. This is because savings can help families cope with unexpected hardship, such as a job loss or illness, or be strategically deployed to pay for educational or training opportunities. Savings are a foundation for economic mobility and the President should have identified a set of policies that would help families save for their future.

Unfortunately, in the aftermath of the Great Recession, the balance sheets of many aspiring families are a wreck. Home values, the largest item on most families’ balance sheet, remain depressed, while stock prices, the largest item on the balance sheet for those at the top, have rebounded. Without focused policy efforts to get working families out from the overhang of debt and empower them to save and, wealth inequality will persist and continue to undercut opportunities for families to move up the economic ladder.