Obama's State of the Union Glossed Over Our Real Economic Problems

In his State of the Union, Obama didn't address the deep structural problems that linger in our slowly-recovering economy.

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David Brodwin is a cofounder and board member of American Sustainable Business Council. Follow him on Twitter at @davidbrodwin.

President Obama's State of the Union address signaled a fundamental commitment to active stewardship over laissez faire and to Keynesian investment over austerity. It's good to see this clarity of vision and purpose, even if his ability to implement that vision is sharply limited by congressional obstruction. Still, as clear as the president was on key issues of education, energy, and bringing jobs home, he glossed over deep structural problems that linger in our slowly-recovering economy.

The president artfully used the opening and closing of the speech to criticize congressional obstructionists without sounding partisan. He opened by invoking John F. Kennedy's line that the president and congress are not "rivals for power, but partners in progress"—implicitly calling on Republicans to allow his agenda to move forward, and giving himself an out if they don't. In his closing, he told us that "Gabby Giffords deserves a vote"—both promoting his gun safety agenda and criticizing the abuse of the filibuster and other tactics that prevent issues from being settled out in the open, where constituents can watch and take note.

[See a collection of political cartoons on Congress.]

Obama spent much of his hour before the nation affirming the importance of building a more competitive economy, emphasizing education, infrastructure, research, immigration of skilled workers, and the reinvigoration of U.S. manufacturing.  He reminded us that "we can't just cut our way to prosperity." Cutting taxes is only stimulative to a certain point—a point we probably reached back in the 1980s. Beyond that point, tax cuts hurt economic growth and sap America's competitive strength.

Sadly, Obama lost his nerve when it comes to several major structural problems with the American economy. Most importantly, his speech failed to address the continuing woes in the financial sector. Banks, still digging out from losses suffered in the housing bubble, do not yet provide sufficient liquidity to the real, Main Street economy. This holds back the recovery, since the Main Street economy (small business and microenterprise) generates a disproportionate share of new jobs and consumer spending. Leaders of institutions involved in systemic risk have faced no criminal liability or material financial losses, and so nothing dissuades them from taking excessive risk. They continue to enjoy a "free put" to dump bad deals on the taxpayer and job-seeker. Meanwhile, the financial lobby continues to subvert regulations, shackle regulatory agencies with too-small budgets, refuse to confirm nominees for agency leadership, and evade accountability in other ways. President Obama must apply his leadership and political capital to sweep these stables clean.

[See a collection of political cartoons on the economy.]

Obama missed no opportunity to celebrate the prowess and bravery of our armed forces, but he barely mentioned the problem of excessive military spending.  He should push harder to trim defense spending back to post-Soviet Union, pre-9/11 levels. The U.S. continues to spend more than 8 times the defense budget of China, the country with the second largest armed forces. This is unnecessary and inefficient. We can—and must—keep America safe for less.

Obama called for investment in supporting strategically important new industries such as alternative energy, but needs to bring more heat on the issue of stripping away subsidies, tax loopholes and other protection from industries that no longer need or warrant government protection. Economic theory says that it's wise for governments to subsidize growth of strategically important industries that provide high value-added to the economy. The United has done this successfully throughout its history from textiles to telecommunications, from canals to computers. Our trading partners—Japan, China, and Germany—do this successfully as well. But the problem arises when a country can't muster the political will to disinvest from mature industries that no longer warrant protection. Where is the strategic rationale for subsidizing and protecting U.S. sugar growers, for example?

[See a collection of political cartoons on healthcare.]

Obama needs to push for faster implementation of healthcare reform, and further changes if we're serious about bending the cost curve. We still pay about 18 percent of GDP for our care, compared to other developed countries that pay 10-12 percent for roughly the same outcome. We're not close to reversing this disparity.

President Obama's challengers will argue that Obama did not do enough to cut the deficit. And they're right—but not for the reasons they think. The way to build competitiveness and cut the deficit at the same time is to attack the areas of spending that do nothing for the economy as a whole—but unfortunately each of these areas of spending has a special interest behind it, with deep pockets and great political skill. But if we can return our security costs to pre-9/11 levels, get our healthcare costs closer to the developed-world average, and stop subsidizing industries that no longer warrant it, this will go a long way toward strengthening the economy.

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