SOTU: The President's Economic Proposals

My response to the economic policies discussed by president Obama in the State of the Union address (no link yet):

SOTU: The president's economic proposals, Commentary, CBS News: Prior to president Obama's State of the Union address I said he should do two things, defend the administration's economic policies to date, and talk about what will be done from this point forward to solve the nation's economic problems.

However, except for the bailout of the auto industry and a brief mention of a few other successful initiatives such as financial reform, the president didn't say much about his administration's past economic policies. In retrospect, that was probably wise. Trying to convince people that the stimulus and bailout policies were more effective than they realize simply brings these issues into the limelight. The policies were very unpopular, and arguing with the public about their success is a losing proposition. It's better to look ahead. As Obama said in the speech:

I want to speak about how we move forward, and lay out a blueprint for an economy that's built to last -- an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.

The president began the discussion of his economic initiatives by outlining a proposal to revive manufacturing in the US. The plan is to use tax breaks to encourage companies to locate in the US, to keep jobs at home by eliminating tax advantages for companies that move offshore, to lower corporate taxes in the US, and to appeal to the goodwill of US companies (who should do what they can do to bring jobs back to this country).

He also wants to boost exports. To this end, he proposed more trade agreements (and lauded those the administration has already put into place), and he highlighted the creation of a "Trade Enforcement Unit that will be charged with investigating unfair trade practices in countries like China."

Finally, the plan to revive economic growth and employment also involves more support of small businesses, e.g. tax cuts and a reduced regulatory burden, support for research and development (particularly in energy related areas), mortgage refinancing for "responsible" homeowners," an extension of the payroll tax cut, and a plan to repair crumbling infrastructure.

The plan the president outlined is fine as far as it goes, but I wanted a jobs plan that was big and bold. I wanted a plan that puts immediate job creation at the forefront. However, this plan is largely tax cuts, it's piecemeal, and it's mostly directed at our long-run problems. Bringing business home doesn't happen overnight, R&D takes time, so does infrastructure, and so on. Millions of people need jobs now, not later. They don't have time to wait, for example, for manufacturing to move from China back to the US, and there's no certainty that will happen in any case. What was missing from the speech is a strong, coherent plan to create jobs immediately. Don't get me wrong, we need to address our long-run problems. But we also need to get people back to work as soon as possible.

Obama's education initiatives also deal with long-run rather than short-run issues. His call to improve education at all levels, and to make sure higher education is available to everyone is certainly welcome and it would help us in the long-run, but it won't create many jobs over the next few months. He does call for improved job retraining programs, and "a national commitment to train two million Americans with skills that will lead directly to a job," but even those programs will take time to put into place.

He also mentioned other issues in the speech such as the budget deficit and the need to regulate markets, financial markets in particular. The most notable proposals are his plan to impose a minimum 30 percent tax rate for incomes over a million dollars per year, and the surprisingly strong commitment to pursue financial fraud. The administration will create "a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people's investments." Obama will also ask the Attorney General "to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis." This is very much needed, and should have been done long ago.

Finally, in my list of recommendations I also mentioned the need to hammer Republicans over obstructionism, and on this topic the president said "I intend to fight obstruction with action." I'm not exactly sure how that works, but at least he mentioned the issue.

Right now, there are millions of people unemployed. That's a poor state of the union -- we have an employment crisis -- and putting people back to work ought to be treated as a national emergency. Though I am less enthusiastic than the administration about an export led strategy for economic growth, the speech hit many of the right notes where our structural problems are concerned. And there were certainly nods toward our short-run problems as well. But a strong sense of urgency about our immediate employment problem was missing from the speech. It's probably wise politically not to promise to create jobs between now and November. That could backfire if unemployment falls sluggishly or not at all (and if unemployment falls at a relatively fast pace, the administration can still claim credit). Nevertheless, I would have preferred a more concerted and detailed effort to deal with our immediate employment problems.