The Pillars of Economic Transformation

In his 2011 State of the Union, President Obama outlined a sweeping program for economic transformation, resting on innovation, education, infrastructure, deficit reduction, and governmental reform. The New America Foundation asks whether these are the right “pillars” of a national agenda.  

Three of them – innovation, education and infrastructure – are on the mark.  But deficit reduction, as a goal of policy, contradicts these goals. And “government reform” is just an old slogan without substantial content, as the text of the State of the Union address itself reveals.

From the beginning, the Great Crisis has demanded a strategic response.  The President's conceptual failure in 2009 was the notion that a sufficient “stimulus” program, coupled with measures to preserve Wall Street, would suffice to “restore credit flows” and “get the economy moving again.”  This was never true. The stimulus and financial measures could stabilize things, but they could not by themselves restore growth, prosperity, and high employment.  Policies based on this vision would have disappointed, even if the “stimulus” had been markedly bigger and better than it was.

The new vision stresses innovation to cope with our energy and climate challenges.  It stresses education as social policy and for economic competitiveness.  It stresses infrastructure not only for competitiveness, but also for quality of life.  These are simple matters to speak of – matters of vision, direction, orientation stated in very general terms – but they are moves in the right direction.

However, the President chose not to specify what actions Congress should take. Implementation, in other words, was missing. Given the futility of our politics, one can understand why he was reticent. But in the real world, the path from intention to results is paved with actual proposals and actual decisions, which must be based on realistic technologies, not pipe dreams.  You cannot simply wave a wand.

On innovation: did the President really hold out hope for fueling cars with water and sunlight? (Yes, he did.)  Did he promise that 80 percent of our electricity can come from “clean” sources (and what, if anything, does that mean?) Does he really think that biofuels can “break our dependence on oil”?  He said so.  That he said so is a sad commentary on the place of science in the Obama White House.  That he didn't mention the threat these initiatives are supposed to deal with – global warming – is sadder still. 

So how about a new set of national labs, spread across the states, to carry out basic research, technical development and evaluation – to get credible and apolitical answers to these questions and to plot the best path? How about a new program of research consortia, research parks and joint ventures, again on proven models and with competent, autonomous review boards?  How about regional planning centers to adapt new technologies to local conditions?  How about a Cabinet department to coordinate these efforts for energy security and against climate change?

On education: exactly how does the Administration propose to find and retain 10,000 new science, technology, engineering, and math (STEM) teachers per year?  Undergraduates in these areas take four years to train; to get the best students into the profession will require creating jobs and guaranteeing that they won't later be cut.  Short-cuts like Teach for America can help, but in 2009 Teach for America placed only 700 STEM majors in the schools, and most of those only teach for a couple of years.  They don't “become teachers” as the President called for; they go on to do something else.

Let's also ask – why only STEM?  American competitiveness depends at least as much on style, design, creativity and art – and especially on the liaison between technology and art.  If you like exports, Hollywood is a big winner.  And if you understand that education is actually not about exports, nor even about jobs, but about our quality of life,  then you appreciate even more the need for a balance between science, technology, engineering and math, and music, art, literature, history and economics.  Well, maybe not economics.  But accounting, certainly.

On infrastructure, the grand goals include giving 80 percent of Americans “access” to high-speed rail in 25 years, and 98 percent of all Americans access to broadband within 5 years.  [His reasoning is curious: he said, “It’s about a rural community in Iowa or Alabama where farmers and small business owners will be able to sell their products all over the world.”  Actually this has been true for a long time: Alabama was settled, with its slaves, to supply the British mills with cotton. But I digress.]

Goals of this kind are needed. But who is specifying how they will be achieved?  Where can I get a map of the new high-speed rail network of which the President spoke? How will they be paid for? Who exactly will make the technical decisions and carry out the work? These questions were not discussed. In every known successful case, they require an organization capable of making decisions and of guaranteeing finance over long periods of time and against many obstacles, and of surviving in the face of changing political winds.  Surely it's time, therefore, for a National Infrastructure Development Bank, an idea that has languished on the progressive agenda for nearly 30 years.

Having laid out his big goals, the President undercut them with references to deficit reduction.  In the real world, the deficit isn't a policy objective: it's an outcome. If the economy improves, deficits will decline. If it doesn't, they won't. Meanwhile, dwelling on the issue just encourages the historic enemies of Social Security and Medicare, who twist everything into an attack on these programs.   

It's true, President Obama didn't say much about deficits or debt, and what he did say, he buried deep in the speech. It's true that he didn't use the weasel-word “entitlements.”  He left it to the Republicans, for once, to be the doom-and-gloom Walter Mondales of American politics. That's good.  But even less would have been better.  If you are going to ramp up spending on such “discretionary” matters as innovation, education and infrastructure, and if you are committed to deficit reduction but not to tax increases, then you have either to cut defense, or Social Security and Medicare.  The President proposed none of these things.  But since he didn't, he would have been better off not mentioning deficits at all

On government reform, the President said little. Actually he said more as a defense of regulations than about the evils of government interference:

“...I will not hesitate to create or enforce commonsense safeguards to protect the American people. That’s what we’ve done in this country for more than a century. It’s why our food is safe to eat, our water is safe to drink, and our air is safe to breathe. It’s why we have speed limits and child labor laws. It’s why last year, we put in place consumer protections against hidden fees and penalties by credit card companies, and new rules to prevent another financial crisis. And it’s why we passed reform that finally prevents the health insurance industry from exploiting patients.”

In my view, these were the best lines in the speech.

What was missing? The victims of the actual crisis were invisible. The unemployed. The involuntarily retired.  The underwater, the foreclosed, and about-to-be-foreclosed. The states and localities, slipping ever-more-deeply into financial crisis. The victims of financial fraud, incompetence and abuse, now extensively presented in the Report of the Financial Crisis Inquiry Commission. The President chose to ignore them all.

One can make people invisible – it is a special power, granted by the media to the President, to do so. But they don't disappear. One can ignore them, but their problems don't go away.  One can look to the long term, but the short term is where the harm and hurt are.

The President needs a few people in high places to focus on the most pressing immediate issues – housing, jobs, retirement – and how to deliver relief. A temporary reduction in the Social Security full-benefit retirement age, and cutting the age of eligibility for Medicare to 55, could work wonders.  A jobs program aimed (say) at expanding care for needy elderly would help. Open-ended revenue sharing to sustain key public services, or the federalization of Medicaid, could save the states and cities.  A Home Owners Loan Corporation as in the New Deal, and effective foreclosure relief, partly through a right-to-rent law, would move the housing crisis toward resolution.

Let's get it done.

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James K. Galbraith holds the Lloyd M. Bentsen, Jr., Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin, and is the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.