The State of the Union's Troubled State

A strikingly unaudacious speech from Barack Obama failed to address America’s problems

WASHINGTON (Economist) January 26,  2011 ― In a show of civility prompted by the dreadful shootings in Tucson, Republicans and Democrats sat side by side to hear Barack Obama’s state-of-the-union message. But that truce could not hide the fact the two sides have starkly different analyses of what has gone wrong in America. And in so far as either side has solutions to offer (which is sadly not very far), these are starkly different, too. Everyone pretends to be in favor of bipartisan dialogue, but it is a dialogue of the deaf.

America faces two huge, linked problems. Its unemployment rate is running at 9.4%; once you add in those who want full-time work but can find only part-time jobs, it is almost twice that. Job creation is not even keeping pace with the rise in population. And the budget deficit is running at almost 10% of GDP; on that measure this year and the previous two will have been the three worst since the second world war.

To the Republicans who now control the House of Representatives, the main problem is the deficit and the cumulative burden of debt it brings with it. The deficit will of course narrow as the economy recovers, but because of the insatiable demands for health care of America’s now-creaky and retiring baby-boomers, unless taxes are hiked it will not dip below 4% of GDP, and it will start to rise again after 2015. That is not sustainable. Not only will borrowing on this scale tend to crowd out more productive investment: the interest on it is already eating up 10% of government revenue, a figure that will rise as interest rates go up. Hence the Republican demand for swift and deep cuts. Get spending down, shift government off the backs of the people, and jobs will return, as the invisible hand works its magic.

Mr. Obama sees things the opposite way round. His state-of-the-union speech was an attempt to place jobs — which, according to pollsters, most Americans say are their priority — at the forefront of the debate, and he put the deficit at the end of a long list of concerns. After two years in which he concentrated more than was wise on getting health reform passed, refocusing on jobs makes some sense. It is obviously true America’s infrastructure, both human and physical, is sub-par (its children’s math skills were recently placed 25th out of 34 in a ranking of OECD countries). And it is hard to reduce the deficit while the country has a large group of persistently un- or underemployed people.

But two large difficulties arise. First, neither Mr. Obama nor the Republicans has a workable plan for dealing with even their own main concern; and second, neither side seems interested in dealing with the other’s priority. This is not a recipe for a productive partnership.

Explore our interactive guide to the state of the United States, and see our word cloud of the president's speech. Sputter-nik

Mr. Obama claimed America needs to “out-innovate, out-educate and out build the rest of the word”. Yet his speech provided only the waffliest of ideas about how it might do that, and no indication of how they might be paid for. The parallel he likes to draw with the moment when Sputnik was launched and America realized Russia was winning the space race falls down there, for in 1957 America’s government had piles of cash to spend on catching up. Now it has none.

True, some of the measures Mr. Obama talked about this week, such as rewarding schools for holding poor teachers more accountable, should not cost much. But others — such as bringing high-speed rail to 80% of Americans and broadband internet to 98% of them — will. And the federal government’s record suggests the money may not be well spent: a report by the World Economic Forum puts America at 68th in the world for the effectiveness of its public-sector spending.

The big cop-out

Mr Obama also said far too little about what most concerns Republicans and what led to his party’s defeat at the mid-terms: the deficit. Cutting hard this year is too risky; but laying out a concrete set of proposals on how to get the budget back into shape from 2012 onwards is essential.

A year ago Mr. Obama set up a deficit-reduction commission, which duly produced a sensible report at the end of last year. He has failed previously, and failed again this week, to endorse the commission’s conclusions. He offered no specific proposals for cutting the cost of the biggest drains on the federal purse: health care, Social Security (pensions) and defense. And, although revenues will have to rise if the budget is to be brought into balance, he failed to explain to middle-class Americans that they will have to pay more tax. His only gestures in the direction of fiscal responsibility were to propose reforming corporate tax, increasing some taxes on the very rich and extending a freeze on some categories of discretionary spending, all of them tiny parts of the overall picture. If he is serious about the deficit, this was the time to show it. He should have taken courage from recent improvements in both his poll ratings and the economy. He copped out.

For their part, the Republicans have made it clear that they have no interest in Mr. Obama’s plans to spend or invest more money. Given that they are supposed to be the party of fiscal rectitude, that is understandable. But they, too, are failing in their main brief, having neglected to come up with a plan for dealing with the long-term problem caused by entitlements. The only medicine they propose is cuts of 20% and more on parts of the “non-security discretionary” bits of the budget (on only about 17% of it) which would succeed in causing a lot of pain while failing to solve the problem.

Both parties’ ideas are rotten, but the collision between them looks like being worse. On March 4th the federal government will run out of money unless Congress first passes a bill voting more; a few weeks after that, it will bump up against the federal debt ceiling, now set at an apparently insufficient $14.3 trillion, unless, again, Congress votes to increase it. Both measures must be passed by a House of Representatives now firmly in Republican hands, and also require the support of seven or more Republican senators. The Republicans have vowed to exact deep spending cuts in return for their assent. The president will not accept these. The stage is set for a savage spring.