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A Strong State of the Union Address for a Union in a Different State

Robert L. Borosage – President, Institute for America’s Future

Posted: January 26, 2011 01:09 AM

No surprise that President Obama knows how to deliver a speech. His State of the Union speech will add to his reviving poll numbers. He set up what should be a centerpiece of Washington’s debate over the next months: invest and grow vs. the Republican “cut and grow,” or in the Republican Study Group version, “gut and grow.” This is an argument that will mobilize progressives and that the president can win if he wages it. Americans are more concerned about jobs and growth than they are about deficits and cutting spending. And the president did a good job of describing how investments in research and development, infrastructure and education are vital to our growth.

But what was striking was not how new, but how dated and conventional the speech seemed. This was a speech that sounded as if it were anchored in 1992 or before. But the world has changed, and the illusions of conventional wisdom have been shattered since then.

Obama movingly described the plight of working Americans who found their jobs, indeed their dreams, shipped out from under them. But Americans aren’t losing jobs and income and security, as the president then suggested, because of “revolutions in technology” and China and India “educating their children” and “investing in new research.” As Germany’s success as a high wage export nation proves, Americans have lost wages, benefits and job security, and are scarred by Gilded Age inequality because of failed public policies: a Wall Street trade policy explicitly designed to facilitate the export of jobs rather than products; a corporate war on labor plus executive pay policies that keep workers from capturing a fair share of productivity gains; and inadequate investment in areas vital to our growth, and of course, successive top end tax cuts.

The flawed diagnosis leads to an inadequate prescription. Investment in education, R&D and infrastructure is essential, as the president said. A move to new energy and capturing a lead in the green industrial revolution are vital. But the Chinese are using their mercantilist toolkit to make themselves the global manufacturer of solar panels and windmills. Without a serious industrial policy and a reformed trade policy that challenges Chinese mercantilism, US technology and companies will build green jobs abroad.

The president, eager to brandish his fiscal probity, chose not to make an explicit argument for putting off budget cuts until the economy comes back. Instead he agreed the time had come for getting our books in order. He noted that we couldn’t afford to make the top end tax cuts permanent — a populist gesture that was popularly received according to reports from dial testing of independents. But his emphasis was on spending cuts — extending his three year freeze on federal DOMESTIC discretionary spending to five years, to the lowest levels as a percentage of GDP since Eisenhower. (thereby virtually insuring that his investment agenda will suffer the fate of his recovery plan — too small and cribbed to do the job).

The source of current deficits — two unfunded wars, massive defense spending and “homeland security spending” increases, successive tax cuts, skewed to the wealthy and recession — were not mentioned.

Obama wisely argued that the main source of future deficits comes from soaring health care costs — as opposed to entitlements, making the case for continuing with his health care reforms. But instead of going after next step common sense reform that would actually save big time money — lifting the ridiculous ban on Medicare from negotiating bulk savings on prescription drugs for example, he turned, in a gesture to Republicans, to ending “frivolous lawsuits,” a political posture that doesn’t do anything on the cost of health care.

The president chose to put Social Security on the table, arguing for the need to “strengthen Social Security” in the context of deficit reduction -“to put ourselves on solid ground ” — where it simply doesn’t belong. It hasn’t added to the deficit, and reforms won’t help reduce the deficit in the short term. The AARP, which had been silent in the run up to the speech, was sufficiently alarmed to put out a statement decrying the error.

Washington still seems oblivious to the straits we are in. Republicans are clueless, arguing for the same policies that drove us into the worst downturn since the Great Depression. They assume the economy is growing so they can slash and burn government spending while pursing top end tax cuts (and blame Obama for excessive spending and regulation if jobs don’t revive). Obama assumes the economy is growing so he doesn’t need to push an immediate jobs program, or a new global strategy or take on the unsustainable concentration of wealth or the big banks.

The president set up a debate on investment which progressives will be happy to join. But the limits of this debate are too narrow, the reforms too limited. This isn’t 1995 when Bill Clinton could count on a rising economy and a dot com bubble to fuel his revival. What is reviving in America is the old economy that was unsustainable — Gilded Age inequality, debilitating trade deficits, concentrated and highly leveraged banks, and a declining middle class. Progressives will have to challenge the confines of this debate and offer a far bolder strategy to revive the American dream that politicians of both parties invoke.

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