The President Ignored the Elephant in the Room

The President’s new emphasis on the importance of investing in education, infrastructure, and basic research in order to build the nation’s long-term competitive capacities is appropriate. For the last three decades the federal government’s spending on these three essentials has declined as a percentage of its total spending, arguably threatening America’s technological and economic leadership.

But the President’s failure to address the decoupling of American corporate profits from American jobs, and explain specifically what he’ll do to get jobs back, not only risks making his grand plans for reviving the nation’s “competitiveness” seem somewhat beside the point but also cedes to Republicans the dominant narrative.

The address he gave last night could have been given (indeed, was given) by Democrats in the 1980s when Japan seemed to threaten America’s preeminence.   Bill Clinton’s 1992 campaign manifesto, “Putting People First,” laid out the case. Only now the competitive threat comes from China.

A similar call for economic patriotism and public investment emerged in the 1950s and 1960s, when the competitive threat was the Soviet Union. John F. Kennedy challenged America to get to the moon ahead of the Soviets. Before him, Republican president Dwight Eisenhower committed the nation to building the interstate highways system – forty-one thousand miles of four-lane (sometimes even six-lane) freeways to replace the old two-lane federal roads that meandered through cities and towns – in order to speed troops, tanks, and munitions across the nation in the event of war. And a National Defense Education Act to educate a generation of mathematicians and scientists to catch up with the Soviets in space.

President Obama made the parallel explicit:

Half a century ago, when the Soviets beat us into space with the launch of a satellite called Sputnik, we had no idea how we’d beat them to the moon. But after investing in better research and education, we didn’t just surpass the Soviets’ we unleashed a wave of innovation that created new industries and millions of new jobs. This is our generation’s Sputnik moment.

Reviving these ideas, and the feelings they provoke, is politically astute. A call for national unity and economic patriotism is places the President above partisan rancor, and gives him a rationale for a strong and effective government at a time when Republicans want nothing so much as to shrink it.

But the new theme also poses a danger of appearing to ignore the elephant in the room – the nation’s continuing scourge of high unemployment that shows little sign of abating any time soon.

It’s one thing to challenge the nation to re-embark on the equivalent of a race to the moon when most people feel confident about their own family finances, but quite another when economic security is as endemic as now.

The President understandably wants Americans to feel upbeat about the economic recovery – “two years after the worst recession most of us have ever known, the stock market has come roaring back Corporate profits are up. The economy is growing again,” he said – but little of this has yet trickled down to ordinary people who continue to be plagued by a huge debt load, business’s unwillingness to create full-time jobs, and a still fragile housing market.

The Great Recession wasn’t due to America’s loss of “competitiveness” relative to the Chinese or anyone else. In fact, American corporations are now enormously competitive, racking up some of their highest profits in history. But much of their success is occurring outside the United States. GE, whose CEO, Jeffrey Immelt, was just tapped to head Mr. Obama’s new advisory council on jobs and competitiveness, has more foreign employees than American. General Motors now sells and makes more cars in China than at home.

Republicans and their supply-side economists say the nation got into trouble because government became too large, and the answer is therefore to cut spending, cut taxes, and shrink the deficit. The President, having apparently given up on Keynesian pump-priming, has no retort except to invest for the long term.

What the President should have done is talk frankly about the central structural flaw in the U.S. economy – the dwindling share of its gains going to the vast middle class, and the almost unprecedented concentration of income and wealth at top – in sharp contrast to the Eisenhower and Kennedy years.

Although the economy is more than twice as large as it was thirty years ago, the median wage has barely budged. Most of the gains from growth have gone to the richest Americans, whose portion of total income soared from around 9 percent in the late 1970s to 23.5 percent in 2007. Americans kept spending anyway by using their homes as ATMs but the bursting of the housing bubble put an end to that – leaving them without enough purchasing power to reboot the economy. So the central challenge is put more money into the pockets average Americans.

This narrative would be politically risky (opening Mr. Obama to the charge of being a “class warrior”) but at least honest. And it would allow him to connect the dots – explaining why his new health-care law is critical to reducing medical costs for most working families, why tax reform requires cutting taxes on the middle class while raising them on the rich, why the Bush tax cuts shouldn’t be extended for the wealthy, why deficit reduction must not sacrifice education and infrastructure (both important to rebuilding middle-class prosperity) and why any cuts in Social Security or Medicare must be on the backs of the wealthy rather than average working families.

Importantly, it would give him a convincing counter-narrative to the Republican anti-government one. Government exists to protect and advance the interests of average working families. Without it, Americans have to rely mainly on big and increasingly global corporations, whose only interest is making money wherever it can be made.

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