Two of President George W. Bush’s economic goals in his State of the Union address on Tuesday will be to convince anxious American workers that they should not lose faith in an open, global economy and that they should support tax reform that moves the US closer to eliminating all taxation on investment. What must be recognised, however, is the growing degree to which these two policy goals are in conflict. While the president is essentially right to stress that we cannot turn our back on open markets and globalisation, his rhetoric and policy framework ignore the increasing winner-takes-all and loser-loses-all tendencies in the US economy.

Last year, the wealth of the richest 400 Americans climbed to nearly double the 1982 level as a share of US gross domestic product; but we also saw those suffering losses taking steeper falls. Jacob Hacker of Yale University has found that when US families suffer a drop in income, they face 40 per cent declines on average. At the same time, Lawrence Katz, the Harvard economist, has documented the increasing polarisation in the US labour market as earnings grow at the high end while opportunities for middle-class jobs dry up.