A Reaction to President Obama's State of the Union Message

Obama’s slogan for the State of the Union Address last night, “An Economy Built to Last,” was a way of referring to one of the accomplishments of his first years: successfully reviving the auto industry, which many had said couldn’t be done without nationalizing it. References to other accomplishments were stated more quickly, such as national security (withdrawal from Iraq, disposing of Osama bin Laden) or more obliquely, such as health care reform, financial reform, and arresting the freefall of the economy that Obama inherited in January 2009 (via fiscal stimulus and TARP - both of which are not especially popular programs).

I realize of course that some will not view these as true “accomplishments.” They will argue that we should have let the auto industry go bankrupt, or should have spent another 10 years in Iraq, or that bin Laden was deprived of his human rights, or that the Dodd-Frank bill went too far in financial regulation (or not far enough), or that a federal effort to reduce unnecessary hospital infections constitutes “socialism” or “death panels.” But most Americans wanted these policies.

Evidently the President also has in mind reducing American dependence on imported oil. And slowing the big rise in income inequality, in part by allowing to expire on schedule the tax cuts on the top earners like Mitt Romney that ten years ago brought their tax rates down to 15%.

To me, the phrase “built to last” suggests that the medium-term goal is economic growth that resembles the record expansion of the late 1990s, which was driven by expanding exports, technology, and private sector employment. This would be an improvement over the unsustainable finance-based economic expansion of the 2002-2007, or those of the 1960s, 70s or 80s; they were built on easy monetary or fiscal policy and an expanding government sector, and thus contained the seeds of their own destruction when inflation, debts and asset prices got out of control.

Indeed, as inadequate as the current economic recovery has been, the expansion of private sector jobs over the two years has exceeded the rate during the Bush Administration (when the government sector was the primary source of what limited job creation there was). This comparison holds even if one excludes the two recessions at the beginning and end of the 8-year Bush period, as the graph shows.

[TV clip, "Post Mortem on the State of the Union Message," BNN, 2012.]

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