« To all Maxine Udall Girl Economist Readers | Main | links for 2011-01-25 »

Tuesday, January 25, 2011

Reactions to the State of the Union Speech

PBS Newshour asked for reactions to the State of the Union speech. Like last year (click on "analysis" in the sidebar and people such as Brad DeLong will pop up), they will link some of these comments to parts of the speech (after editing, I basically live-blogged these comments so they are a bit raw, I'll add the link once it's up-- here it is).

Here's what I just emailed.

Jobs: Most of the programs the President mentioned to create jobs and improve the prospects for workers in the future will take quite some time to have an effect. Educational improvements, for example, will not happen immediately. We've been trying to do this for decades already with little to show for it, so we shouldn't expect things to improve overnight. And if reform does eventually happen, it will be many years after that before better educated students begin to enter the workforce. Another initiative from the President, investment in infrastructure, is a little better in terms of how long it takes to create jobs. There will be additional jobs as the infrastructure is under construction, and more jobs in the long-run when it enhances our productivity. But we must first get these programs through Congress and that will take time -- if it can be done at all given the opposition from the GOP. And if and when a program does eventually get through Congress, it will take even more time before the first shovel hits the dirt. I like the ideas I heard from the president, but what about our more immediate job problem? How do we help those who need a job right now? Solving the more immediate job problem needs to be first and foremost on our national agenda, but this was not addressed in the speech.

Eliminating regulation: The idea is that removing unnecessary regulation will improve our ability to innovate, and this will help the economy create new, good jobs. However, it wasn't lack of innovation or lack of competitiveness that got us into this mess, it was an out of control financial sector. The President talked about eliminating unnecessary regulation, but far too little was said about the need to implement new regulations where they are needed. In addition, by focusing so much on helping business, the president risks sending the message that what is good for business is necessarily good for the nation. Businesses need the right environment to thrive, but we must not lose sight of the fact that it's the skills of the people that work at businesses that matters most. Our ultimate goal is the best possible life for as many people as possible, and that requires a broader focus than businesses alone.

[The next one on deficits could go -- I'm so-so on this one.]

Deficits: We need to get our deficit under control, but not before the economy is ready for it. If we move too soon to balance the budget, we could slow the recovery or even cause a return to recessionary conditions. We can learn something about this from the UK. The UK has embraced austerity and taken steps to balance the budget. The idea was that this would create confidence and spur recovery. However, the dismal GDP growth figures released today for the UK tell us we should be very cautious about cutting spending or raising taxes before the economy is on firmer footing that it's on presently. Fortunately for us, Congress moves slowly. That works in our favor here. But with the president signaling such an openness to work with the GOP on this issue, a more immediate and harmful move toward deficit reduction is not out of the question. I would have liked to have heard the president make clear that while deficit reduction must be addressed, we need to be careful not to hit our still fragile economy with austerity before it is ready for it.

Tax increases for the wealthy: I was pleased to hear the president say that "we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2% of Americans." But there needed to be more emphasis on the fact that eliminating tax cuts for the wealthy and spending cuts will not solve our budget problem by themselves. Taxes are going to go up, and the president could have started paving the way for this to happen.

Commitment to freeze spending: The details weren't given, but the President likely has an across the board freeze in mind -- i.e. the discretionary spending freeze means that no program can grow beyond current levels. However, a spending freeze while population is growing amounts to a cut in per capita spending. While this sounds courageous, it's actually the easy way out since it avoids tough choices on which programs to cut and which programs to preserve. It is also not optimal for the economy because per capita cuts in some programs will be much more painful than in others. A better way to do this, and hopefully what will actually happen, is to cut back (or eliminate) the programs that provide the least value, and maintain or perhaps even expand those that provide critical services to citizens. Thus, if the freeze is across the board, it could be quite disruptive to some programs and to the economy. If it is done wisely, the pain from the cuts could be much less.

[I like that reaction best, but here are two more just in case:]

Commitment to freeze spending: As the CBO has made very clear, our long-run budget problem is mainly a problem with rising health care costs. If we fix the health care cost problem, we'll fix the budget problem. If the health care cost problem is not fixed, the deficit will grow uncontrollably no matter what we do with the rest of the budget. Thus, one danger here is that the spending freeze will lead to a false sense that we are solving the budget problem, and this in turn will cause us to lose focus on the critical health care cost problem.

Commitment to freeze spending: One worry here is that if the economy goes into a double dip -- an unlikely but not an impossible event by any means -- our commitment to hold the line on spending and cut the deficit will tie our hands in a way that prevents Congress from doing what is needed to get the economy going again.


With more time and thought, I would have refined what I said, and there are quite a few things I didn't address at all. But too late now. So let me ask: What would you have said?

    Posted by on Tuesday, January 25, 2011 at 08:19 PM in Economics, Politics | Permalink  Comments (55)


    Feed You can follow this conversation by subscribing to the comment feed for this post.