President Barack Obama’s State of the Union address was everything his supporters hoped it would be – dignified, thoughtful and moderate. It was a call for fiscal prudence at a time of growing budget deficits and a summons to improve competitiveness to counter the gravitational pull of the Great Recession. In short, it hit all the right notes. But there was no melody, at least none that was memorable.
It had been billed as Mr Obama’s first salvo of the 2012 election. It was his chance to give his version of why the economy fell into a hole, why so many Americans are still in it and what needs to be done. Instead, his speech could have been given (indeed, was given) by Democrats in the late 1980s when Japan seemed to threaten America’s pre-eminence – about the importance of investing in education, infrastructure and basic research in order to build competitive capacities. Only now the threat is from China.
A similar call came in the 1950s and 1960s, when the competition was from the Soviet Union. John F. Kennedy challenged America to go to the moon ahead of the Soviets. Mr Obama made the parallel explicit. “This is our generation’s Sputnik moment,” he said.
In many ways, the theme is as relevant now as then. For three decades the federal government’s spending on research, infrastructure and higher education has declined as a percentage of total spending. Reviving these ideas is politically astute. A call for unity and economic patriotism gives Mr Obama a rationale for strong government when Republicans want to shrink it. But the theme also poses the danger of appearing to ignore the scourge of high unemployment that shows little sign of abating. It’s one thing to challenge the nation to re-embark on the equivalent of a race to the moon when most people feel confident about their finances, but another when fears over economic security are as endemic as now. Mr Obama wants people to be upbeat over the recovery and cited the “roaring” stock market but little of this has trickled down to ordinary people who remain plagued by debt, with business’s reluctance to create full-time jobs and a fragile housing market.
The recession wasn’t due to loss of “competitiveness” relative to the Chinese or anyone else. American corporations are enormously competitive, racking up some of their highest profits in history. But much of their success comes outside the US. General Electric has more foreign employees than American. General Motors sells more cars in China than at home.
The president’s failure to address this decoupling of corporate profits from jobs, and explain what he’ll do to get jobs back, not only risks making his plans for reviving “competitiveness” seem beside the point but also cedes to Republicans the dominant narrative. Their supply-side economists say the nation got into trouble because government became too large and so the answer is to cut spending, taxes and the deficit. The president, having apparently given up on Keynesian pump-priming, has no retort except to invest for the long term.
What he should have done is talk about the central structural flaw in the US economy, the dwindling share of its gains going to the vast middle class, and the almost unprecedented concentration of income and wealth at the top. Although the economy is more than twice as large as 30 years ago, the median wage has barely budged. Most of the gains from growth have gone to the richest whose share of total income soared from about 9 per cent in the late 1970s to 23.5 per cent in 2007. Americans kept spending by using their homes as ATMs but the bursting of the housing bubble put an end to that – leaving them without enough purchasing power to reboot the economy. So the challenge is to rev-up consumer spending by putting more money into the pockets of average Americans.
This narrative would allow him to connect the dots – explaining why his healthcare law is critical to reducing medical costs for most working families, why tax reform requires cutting taxes on the middle class while raising them on the rich and why cuts in Social Security or Medicare must be on the backs of the wealthy rather than working families. Government exists to protect and advance the interests of average working families. Without it, Americans have to rely on increasingly global corporations, whose only interest is making money wherever it can be made.
The writer is author of Aftershock: The Next Economy and America’s Future and professor of public policy at University of California, Berkeley