David Shulman is a retired Wall Street executive who is now a senior economist at the UCLA Anderson Forecast. He is also affiliated with Baruch College (CUNY) and the University of Wisconsin.
Aside from his full-throated endorsement of what he perceives to be 21st century liberalism, history will remember three themes from President Obama's inaugural address. Two were explicitly stated and one wasn't mentioned at all. Sometime what is not said is of greater importance than what was actually said, more that point later.
The most important sentence in his speech was, "But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future." This is not the thinking of a serious person. The fact is if he doesn't choose history will choose for him because the current trajectory of entitlement spending will crowd out all of the investment programs needed to build our future. In other words, the young, who voted for him in overwhelming numbers, are toast.
According to the Congressional Budget Office over the next 25 years spending on Social Security will rise from 5 percent of GDP to 6.2 percent, Medicare will rise from 3.7 percent of GDP to 6.7 percent (yes, more than Social Security), and Medicaid (along with Children's Health Insurance Program) will rise from 1.7 percent of GDP to 3.7 percent. Remember, Medicaid over time has become more of a middle income entitlement program as the share going to nursing home care for the elderly rises.
In total these three entitlements will amount to 16.6 percent of GDP in 2037, barely below the historical 19 percent of GDP going to all forms of federal taxation. Thus on automatic pilot the entitlement programs will crowd out practically the entire federal budget. Simply put whether he wants to or not President Obama will be forced to choose. Better that he is remembered for reforming our entitlement programs than recklessly leaving it for his successors.
The second main point he emphasized was dealing with the threat, his word, of climate change. This is a very big deal that would require the reordering of much of our economy and it cannot be done without global cooperation, something that is in short supply these days. No matter how laudable the goal the shift from cheap fossil fuels to expensive "sustainable" energy would make for a very expensive transition.
As a practical matter cheap natural gas is overwhelming wind and solar energy which cannot be sustained without the largess of direct subsidies and tax credits. It makes little sense not to take advantage of the natural gas boom which is reviving American manufacturing as we speak. Nevertheless every time natural gas is substituted for coal, carbon emissions go down and that is the reason carbon emissions for the United States dropped over the past five years.
However, there is a way to combine the president's concern for climate change and the need for revenue to pay for his investments in the future generation. A straight forward carbon tax could raise about $100 billion dollars a year and it would have the virtue of using the marketplace to reduce carbon emissions. It would be far preferable to the Rube Goldberg-like cap and trade plan that nearly passed in 2010.
What was not mentioned was the ongoing unemployment crisis still facing our nation. With over 20 million Americans seeking fulltime work, the economic recovery for them is still not here. For a Democratic president not to mention the need to move our country to full employment is scandalous. It yet again demonstrates that the President Obama has much higher priorities than putting America back to work. He would rather keep unsustainable entitlement programs in place and promote such laudable ideas as reducing carbon emissions, immigration reform, gun control and gay marriage than do the really heavy lifting needed to grow our economy to reduce unemployment. Although the voters gave the Democrats a pass on the economy in the last election, it remains to be seen whether they will be as forgiving in the next.