January 27, 2011
It is disappointing that in a speech intended to help Americans understand the state of the union, President Obama failed to take note of the extent of the country’s economic pain and the role that Wall Street greed and the deregulation of financial markets played in creating the economic crisis. The country continues to confront a relentless mortgage crisis and stubbornly high unemployment. The nation needs seven million new jobs just to get back to where we were in December 2007 – and we need even more jobs than this today because we’ve had three years of growth in the working age population. Solving the jobs crisis – more than 14 million workers are unemployed and the figure rises to 25 million if we include those who are underemployed – needs to be at the top of the national agenda. Yet it received no mention in the President’s description of the State of the Union.
The State of the Union was very much focused on the future, and winning it. The unabashedly optimistic view of America as a country that is open for business and does big things apparently precluded any discussion of the past, of how we got into the recession and financial crisis, and any discussion of unpleasant realities like the millions of people who have lost their homes or their jobs and have plunged from economic stability into extreme economic insecurity.
While unemployment was not addressed, there were two concrete proposals in the SOTU.
First, the President called for a freeze on discretionary spending now and for next 5 years. But why now? The economic recovery is still fragile and most economists think it is far too early to reduce federal spending, which can slow the growth of GDP and make job creation more difficult. The proposed cuts are not likely to plunge us into a double dip recession – they are probably too small for that. But they are big enough to reduce vital services that citizens rely on – especially the vulnerable and the unemployed – and to make government less effective in serving the needs of people.
Second, while the President made no mention of policies to put unemployed workers back to work, he did propose help for corporations. According to President Obama, the recession is behind us. The stock market has come roaring back, corporate profits are rising, and the economy is growing. Yet, the President proposed cutting corporate tax rates. He also proposed removing unnecessary regulations in order to improve the ability of companies to innovate and create new, good jobs. But the economic crisis was not due to a lack of innovation or competitiveness – it was caused by an out-of-control financial sector that financed the expansion of the housing bubble. In contrast, the President said little about implementing new regulations where they are needed – for food safety, consumer protection, and to rein in finance.
To his credit, the President did propose an ambitious investment agenda to repair America’s deteriorating infrastructure and to enable the country to catch up to and exceed our competitors in areas like clean energy, high speed Internet, and high-speed rail as well as in educational attainment. Eliminating subsidies to oil companies and funding clean energy alternatives instead is a good start. But it is unlikely that this investment agenda can be adequately funded by eliminating waste and redirecting priorities. These investments are important for our nation’s future and should be funded by Congress. Most of the benefits will be realized in the future via more innovation, greater productivity growth. Less clear is where, in this era of globalization and ‘free’ trade deals, the good jobs will be located.
What President Obama did not say in the State of the Union is as important as what he did say. Rumors suggesting that he was going to propose cutting Social Security turned out to be unfounded. Despite the great pressure on him to endorse the recommendations of his deficit reduction commission and propose an increase in the retirement age and other reductions in benefits, the President provided instead a forceful defense of Social Security. He also did not suggest that we must impose austerity on the country now. In this he drew a sharp contrast between himself and his Republican opponents, both conventional and Tea Party members of Congress. He did warn, however, that Congress will ultimately have to target entitlements, reduce Medicare and Medicaid spending, and ‘find a bipartisan solution to strengthen Social Security.
