What He Should Have Said
Obama’s inspiring leadership needs more than vague purposes and a few better facts.
In his first address to Congress, President Obama claimed that a “day of reckoning has arrived.” The occasion was a day of reckoning as well for his still young presidency. Obama had a chance to sketch out a plausible plan for long-term economic recovery, beyond the immediate crisis. Instead he delivered what was in effect a recycled speech from last fall’s campaign, full of programs and platitudes that are popular with his liberal base but only marginally relevant to the urgent issue of economic renewal. In less dangerous times, it would be a mistake to expect too much from an informal state of the union address from a new president. But we are in the midst of the worst economic crisis since the Great Depression, and the president needed to assure us that he and his team know what needs to be done. He didn’t, and we are left to fear that they don’t.
When a politician tells you that we must engage in a transformational, epochal program, and then proposes that it be paid for out of pocket change, there is no reason to keep listening.
What Obama Should Have Said
He should have explained that the bubble economy was the result of the toxic interaction of chronic trade deficit nations like the U.S. with chronic trade surplus nations. And the president could have explained that America’s private debt culture was not simply the result of our own greed, but a byproduct of the reality that most workers have not shared in productivity growth. Unable to maintain middle-class living standards with rising wages, many have turned to debt. The president could then have explained the treatment—a gradual increase in consumption by surplus countries (particularly China and Japan) and the opposite combination of more exports, fewer imports and higher savings by the U.S. And while expanding the most productive sectors of the economy, we must undertake reforms like a higher minimum wage and broader unionization to make sure that the gains of growth are shared with the workers, unlike in the past generation.
A brilliant writer with a first-rate speechwriting team, he could have said it in plain English: “In the long run, we have to grow our way out of this mess. And the only way to do that is to make and sell more, not to borrow from people in other countries to buy the goods that they make. That new growth has to show up in pay-checks, not just in dividends and CEO salaries.”
What Obama Said
Instead of explaining the underlying cause of the crisis and the only plausible long-term cure, the president set forth a four-part agenda: renewable energy, health care reform, increased access to higher education, and deficit reduction. While each of these are laudable goals, they do not add up to a convincing program for economic renewal following the near-term crisis, and to make matters worse, Obama’s discussion of each showed a confusion of purposes and sometimes of facts.
Let’s start with energy. The president claims that we must have “energy independence” and that all energy eventually must be “renewable.” The very idea of energy independence is confused. Most Americans don’t understand that we get more of our oil and gas from Mexico, Canada and the North Sea than from the Middle East or Russia.
Then there’s the president’s repeated claim that we have to move quickly to “renewable” energy. Not “clean” energy that doesn’t contribute to global warming by producing greenhouse gases, but “renewable.” Why the difference? Because the left wing of the Democratic Party is ideologically opposed to nuclear energy, which produces radioactive wastes but does not emit greenhouse gases. According to the U.S. government, in 2006 renewables like solar, wind, hydropower and geothermal made up only seven percent of the US energy budget—compared to eight percent for nuclear, 23 percent for coal, 23 percent for natural gas, and 40 percent for petroleum. The president could have challenged the fantasies of the left about the potential contribution of renewable energy; instead, he pandered to them by omission.
Notwithstanding the unimpressive results of cap-and-trade in Europe, President Obama called on Congress to combat global warming by enacting a cumbersome cap-and-trade system instead of a much simpler carbon tax. He claimed that the resulting revenues (presumably from an auction) would allow the U.S. government to invest in alternate energy sources to the tune of... $15 billion a year. Fifteen billion a year? That’s chicken feed. When a politician tells you that we must engage in a transformational, epochal program, and then proposes that it be paid for out of pocket change, there is no reason to keep listening.
Health care reform is the second part of the four-part agenda for economic recovery that the president outlined in his address to Congress. President Obama is right that out-of-control health care costs will wreck the U.S. economy, unless they are restrained. Like millions of Americans, I waited eagerly to hear the details of the president’s health care reform proposal. And the proposal is….to form a bipartisan commission to study the issue.
Item three in Obama’s agenda for economic recovery is expanding education. According to the president, because of the demands of the global economy, “Every American will need to get more than a high school diploma.” This line received thunderous applause. There’s just one problem—it’s not true.
In an important article published last year, entitled “ How Many College Graduates Doe the U.S. Labor Force Really Need?” Paul E. Barton of Educational Testing Service takes on the rhetoric of politicians and pundits who exaggerate the educational demands of the twenty-first century U.S. economy. One rhetorical device, Barton notes, is talk about the “fastest-growing jobs” in the economy, as opposed to the jobs with the greatest number of overall openings. In his address to Congress, President Obama used exactly this misleading technique, mentioning only rapidly growing jobs that demand high skills without pointing out just what a small percentage of jobs they actually are. As Barton observes, according to the Bureau of Labor Statistics only three in ten jobs today require postsecondary education and the number is likely to grow only slightly in the years ahead. What is more, eight of ten American workers work in the non-traded domestic service sector and therefore do not compete with foreign workers at all.
In his speech to Congress, President Obama promised that the U.S. by 2020 would have the highest percentage of college graduates in the world. It is true that Europe has more college graduates as a percentage of the population than the U.S. By reducing the relative value of college diplomas, the effect in Europe has been to lower the earnings of college graduates relative to less-educated workers. The truth is that struggling American workers don’t need more schooling. They need to be paid more for the work they are doing already.
Having repeated popular errors about the relation between globalization, education and wages, the president proceeded to propose a cure worse than the disease. He noted that tuition costs have skyrocketed. Instead of addressing the tuition cost problem, the president proposed to punish young Americans from low-income families, by requiring them to “volunteer” in “national service” in order to qualify for aid. Of course Obama doesn’t consider this punishment. But it is obviously class-based discrimination. If your folks are rich, you can go to an elite school without having to perform any labor service to the state. Mom and Dad just write a check. But if your folks are poor, then to get government scholarship help you’ll have to agree to be temporarily drafted. (Years ago, notwithstanding my skepticism, I helped the late William F. Buckley, Jr. write his book arguing in favor of national service, Gratitude. It was a bad idea then and it’s a bad idea today).
The final element of President Obama’s growth agenda is deficit reduction. The president, having noted that he had pledged to cut the deficit in half by 2013, then promised to cut taxes on 95 percent of Americans. The details of his budget plan remain to be announced, but it appears that the administration is counting on income tax increases on the rich, together with lower post-Iraq military spending and health care reform, to reduce the deficit. Just as President Roosevelt’s misguided attempt balance the budget in 1937 plunged the U.S. back into Depression, this too-rapid attempt by the president and Congress to reduce the federal deficit too quickly might well kill off a recovery a few years from now.
The president appears not to have learned from his own budget director, Peter Orszag, that there is no general “entitlements crisis,” only a crisis of health care cost inflation that affects private sector health care as well as Medicare. During the campaign Obama repeatedly warned of the urgent need to fix a nonexistent problem, the alleged imminent bankruptcy of Social Security, a fictitious crisis that has been fabricated by conservatives and libertarians who want to kill Social Security through privatization in the name of saving it.
In his address to Congress, President Obama unnecessarily gave ammunition to the deficit hawks of the right twice. First, he gave equal time to the real need to reform Medicare (which is in bad shape) and the alleged need to reform Social Security (which is in good shape for years to come). Second, he called for Congress to create “tax-free universal savings accounts for all Americans.” To be invested in the stock market, perhaps
There is a distinct similarity between the Obama team's approach to education and its approach to health care, retirement and banking policy. In all three cases, Obama and his aides, eager to prove they are business-friendly, favor combining subsidies to corrupt or inefficient economic sectors with paternalistic mandates on the behavior of the victims of those industries. Instead of being given educational grants with no strings attached, needy students will be forced to do community service, in order that government may use them to channel subsidies to consumer-gouging universities. Instead of being provided low-cost, public health care, Americans will be forced by a mandate to buy insurance from private insurance companies. Rather than expand the Social Security system, the Obama administration proposes to encourage all Americans to put more retirement money into private investments managed by brokers and banks for fees. And instead of nationalizing the failed banking sector and wiping out shareholders, Obama’s economic team prefers to bribe (“incent”) private wealth into bailing out banks for a profit.
This illustrates the fundamental problem with the Obama presidency so far. Obama may be a fresh face, but his team is filled with familiar Robert Rubin protégés who seem to be stuck in the late twentieth century. The conventional wisdom of the 1990s has been discredited, from the false claim that the global economy requires far more college-educated workers, to the absurd and dangerous assumption that most citizens can count on a higher return from tax-favored private investments than from Social Security. But nobody seems to have told the President, who has excluded dissenters from the Rubinite orthodoxy from his inner circle.
Obama is an impressive and inspiring leader, and his administration is still in its early months. But it is not too early for a fresh start.
Michael Lind is the Whitehead Senior Fellow at the New America Foundation.