State of the Union

02.12.13

Obama Pivots Left on Economy in State of the Union Speech

The president pivoted from deficit reduction to increasing demand—with a surprising call for a higher minimum wage.

What does it take for a Democratic president to start talking like a Democrat about economic issues? Two big presidential election wins, apparently. For when it comes to economics, President Obama delivered a center-left speech for a center-left economic country.

When Obama delivered his State of the Union in previous years, the economy was in deep recession (2009), starting to dig out (2010), and muddling along in very low gear (2011 and 2012). Finally, however, he was able to lead with some justified boasting about the strong run the economy has enjoyed over the past year—in spite of Washington, not because of it.

Housing is back, he declared. The stock markets, energy production, and car sales are all at high levels. “After years of grueling recession, our businesses have created more than six million jobs,” he said. (He might have added that the Treasury Department today reported that the government actually reported a surplus in January.)

The best thing the government can do to help the economy keep growing at this pace is to get out of the way a little bit—to stop with the brinksmanship and threats over the debt ceiling. “The greatest nation on Earth cannot keep conducting its business by drifting from one manufactured crisis to the next,” he said. Obama offered his preferred solution of a balanced replacement to the impending sequester, composed of some budget cuts and new revenue through the closing of tax loopholes.

There isn’t much hope of a 25 percent rise in the minimum wage passing this House in the next two years. But at least Obama is changing the tone of the debate.

So far, so centrist. But he then made a slight turn to the left. To promote growth, he ran through his longstanding laundry list of encouraging manufacturing and clean energy. And then he made a sharper turn. Obama has received his share of grief from the left (and increasingly from the center) for focusing too much on the deficit and not enough on promoting demand. Obama seemed to take some cues from Paul Krugman. Departing from the official bipartisan Washington consensus, he proclaimed that “deficit reduction alone is not an economic plan.”

Then he pivoted to a largely neglected subject in the past four years: wages. “Corporate profits have skyrocketed to all time heights, but for more than a decade wages and income have barely budged,” he noted. Then Obama launched into perhaps the most surprising section of the speech—one that was not rolled out to reporters in the pre-speech phone calls. And to me, it was one of the best parts.

Today, he noted, someone working full time at the minimum wage makes just $14,500 a year. Even with extra tax breaks and credit, “a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.” He continued: “Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full time should have to live in poverty, and raise the federal minimum wage to nine dollars an hour.” Doing so would promote economic justice, to be sure. “It could mean the difference between groceries or the food bank.”

Video screenshot

Watch Obama's call for a higher minimum wage during Tuesday's State of the Union address.

But Obama accurately noted that it would be good for companies and for the economy at large. “For businesses across the country, it would mean customers with more money in their pockets.” He further insisted that this be the beginning, poaching Mitt Romney’s suggestion that the minimum wage be indexed to inflation.

This section was met with raucous applause from most Democrats and cold, icy stares from Republicans. There isn’t much hope of a 25 percent rise in the minimum wage passing this House of Representatives in the next two years. But at least Obama is changing the tone of the debate. He’s pivoting from deficit reduction to demand production, from cutting spending (and hence employment and wages) to raising them.

Last November, the electorate firmly expressed its preference for left-of-center economic policies over the right-of-center approach of cutting taxes for the rich and assuming everybody else will generally benefit. Today, the nation effectively got the economic speech it voted for.