State of the Union

I know, it’s futile to critique President Bush’s State of the Union speech, because as Chad Orzel says, “This administration doesn't do policy, they do politics. If Bush says something in a speech, it's because they think it will sound good in a speech, period. That doesn't mean there's a concrete proposal in the works-- if the line in he speech is poorly received, odds are it will disappear without a trace. And even if the line sounds good, that doesn't mean there will be any follow-through-- ask the people of New York, Afghanistan, Iraq, and New Orleans about that.” Having said that, here’s my exhaustive critique of the economics portion of last night’s State of the Union.

Here at home, America also has a great opportunity. We will build the prosperity of our country by strengthening our economic leadership in the world. Our economy is healthy and vigorous, and growing faster than other major industrialized nations. In the last two and a half years, America has created 4.6 million new jobs, more than Japan and the European Union combined. Even in the face of higher energy prices and natural disasters, the American people have turned in an economic performance that is the envy of the world.

One reason Japan and Europe don’t create as many jobs as the US is that their labor forces aren’t growing as fast. Another reason is that their economies have been performing miserably for the last decade. We shouldn’t compare US job growth to Japan and Europe; we should compare US job growth today with US job growth in the recent past. How’s this: total job growth in the best 30 months of the Bush Administration: 4.6 million (July 2003 – December 2005). Total job growth in the worst 30 months of the Clinton Administration: 6.3 million (March 1995 – August 1997). Percent of US population employed when President Bush took office: 64.4%. Percent now: 62.8%.

The American economy is pre-eminent, but we cannot afford to be complacent. In a dynamic world economy, we are seeing new competitors like China and India. And this creates uncertainty, which makes it easier to feed people's fears. So we're seeing some old temptations return. Protectionists want to escape competition, pretending that we can keep our high standard of living while walling off our economy. Others say that the government needs to take a larger role in directing the economy, centralizing more power in Washington and increasing taxes. We hear claims that immigrants are somehow bad for the economy, even though this economy could not function without them. All these are forms of economic retreat, and they lead in the same direction, toward a stagnant and second-rate economy.

Here’s a president that imposed 30% tariffs on steel imports, expanded agricultural subsidies, cajoles China to devalue its currency, and never misses an opportunity to heap subsidies on favored industries. Who’s turning to government to escape competition?

Tonight I will set out a better path, an agenda for a nation that competes with confidence, an agenda that will raise standards of living and generate new jobs. Americans should not fear our economic future, because we intend to shape it. Keeping America competitive begins with keeping our economy growing. And our economy grows when Americans have more of their own money to spend, save and invest. In the last five years, the tax relief you passed has left $880 billion in the hands of American workers, investors, small businesses and families. And they have used it to help produce more than four years of uninterrupted economic growth. Yet the tax relief is set to expire in the next few years. If we do nothing, American families will face a massive tax increase they do not expect and will not welcome. Because America needs more than a temporary expansion, we need more than temporary tax relief. I urge the Congress to act responsibly, and make the tax cuts permanent.

Isn’t there an economist in the White House who vets the State of the Union speech for utter nonsense? Average tax revenue as a percent of GDP, 1993-2000: 19.2%. Average for 2001-2005: 17.4%. 1993-2000 was a pretty good period of economic expansion, I thought. The tax cuts were a pretty good stimulus for an economy in recession (would’ve been even better if they had been targeted more sensibly). Now that the economy is no longer in recession, the government ought to start taxing people enough to cover what it’s spending.

Keeping America competitive requires us to be good stewards of tax dollars. Every year of my presidency, we've reduced the growth of nonsecurity discretionary spending, and last year you passed bills that cut this spending. This year, my budget will cut it again and reduce or eliminate more than 140 programs that are performing poorly or not fulfilling essential priorities. By passing these reforms, we will save the American taxpayer another $14 billion next year and stay on track to cut the deficit in half by 2009. I am pleased that members of Congress are working on earmark reform, because the federal budget has too many special interest projects. And we can tackle this problem together if you pass the line-item veto.

Again, Bush’s track record doesn’t inspire much faith in the claims he makes about spending. Total non-defense discretionary federal spending in 2000: $319.9 billion. In 2005: $474.3 billion. Average rate of increase in this period: 8.2%. Average rate of increase in non-defense discretionary spending from 1993-2000: 4.1%. Spending growth has declined every year of the Bush presidency? Not quite. Discretionary spending growth in 2000-01, 2001-02, …, 2004-05: 7.3%, 12.3%, 9.1%, 4.9%, 7.5%. Are we impressed that he plans (hopes) to cut the current $337 billion deficit in half by 2009? Well, considering that there was a $236 billion budget surplus in 2000, I don’t think we ought to be. And if the tax cuts are made permanent there is no way the budget deficit will be half as big in 2009 as it is today. Congressional Budget Office projection of 2009 federal budget deficit under current legislation: $241 billion. Projected deficit if 2001-03 tax cuts are made permanent: $290 billion. Projected deficit if tax cuts are made permanent and Alternative Minimum Tax is adjusted as planned: $348 billion. And this assumes that total discretionary spending, including defense spending, rises at only the rate of inflation from now until then. Massive cuts in nondefense discretionary spending (enough to offset the expected increases in defense spending and keep total discretionary spending at its 2006 level) would reduce the projected deficit to $291 billion.

We must also confront the larger challenge of mandatory spending, or entitlements. This year, the first of about 78 million baby boomers turn 60, including two of my dad's favorite people, me, and President Clinton. This milestone is more than a personal crisis. It is a national challenge. The retirement of the baby boom generation will put unprecedented strains on the federal government. By 2030, spending for Social Security, Medicare and Medicaid alone will be almost 60 percent of the entire federal budget. And that will present future Congresses with impossible choices — staggering tax increases, immense deficits or deep cuts in every category of spending. Congress did not act last year on my proposal to save Social Security. Yet the rising cost of entitlements is a problem that is not going away. And every year we fail to act, the situation gets worse. So tonight, I ask you to join me in creating a commission to examine the full impact of baby boom retirements on Social Security, Medicare and Medicaid. This commission should include members of Congress of both parties and offer bipartisan answers. We need to put aside partisan politics and work together and get this problem solved.

This would be at least the third nonpartisan commission established to examine financing of Social Security, etc. since 1983. If Bush were serious about “saving” Social Security he’d take his privatization proposal off the table and negotiate with Democrats over tax increases and benefit cuts.

Keeping America competitive requires us to open more markets for all that Americans make and grow. One out of every five factory jobs in America is related to global trade, and we want people everywhere to buy American. With open markets and a level playing field, no one can outproduce or outcompete the American worker.

Pandering. The fact is that lots more factory jobs are going to go to places like China and India whether or not there are open markets and a level playing field, because those countries can and do outcompete American workers in some industries. It’s called comparative advantage.

Keeping America competitive requires an immigration system that upholds our laws, reflects our values and serves the interests of our economy. Our nation needs orderly and secure borders. To meet this goal, we must have stronger immigration enforcement and border protection. And we must have a rational, humane guest-worker program that rejects amnesty, allows temporary jobs for people who seek them legally and reduces smuggling and crime at the border.

This has nothing to do with keeping America competitive.

Keeping America competitive requires affordable health care. Our government has a responsibility to help provide health care for the poor and the elderly, and we are meeting that responsibility. For all Americans, we must confront the rising cost of care, strengthen the doctor-patient relationship and help people afford the insurance coverage they need. We will make wider use of electronic records and other health information technology to help control costs and reduce dangerous medical errors. We will strengthen health savings accounts by making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get. We will do more to make this coverage portable, so workers can switch jobs without having to worry about losing their health insurance. And because lawsuits are driving many good doctors out of practice, leaving women in nearly 1,500 American counties without a single ob-gyn, I ask the Congress to pass medical liability reform this year.

Yes, health care is a huge issue. There’s an emerging consensus among economists and big business (together with liberals of all stripes) that the solution is government-provided universal health insurance. Countries with universal health insurance spend much much less as a percent of GDP than the US does on health care, cover everyone, and get better health outcomes. Bush doesn’t want this. He wants doctors who cut off the wrong leg to be immune from lawsuits. He wants health savings accounts, which subsidize the people who already have health insurance, drive healthy people out of traditional insurance plans, and drive up costs for people with high medical expenses. If you like how Bush handled the Medicare prescription drug benefit, you’ll love his other ideas on health care reform.

…And to keep America competitive, one commitment is necessary above all. We must continue to lead the world in human talent and creativity. Our greatest advantage in the world has always been our educated, hard-working, ambitious people, and we are going to keep that edge. Tonight I announce the American Competitiveness Initiative, to encourage innovation throughout our economy and to give our nation's children a firm grounding in math and science… double the federal commitment to the most critical basic research programs in the physical sciences over the next 10 years… support the work of America's most creative minds as they explore promising areas such as nanotechnology and supercomputing and alternative energy sources… make permanent the research and development tax credit to encourage bolder private-sector initiative in technology… encourage children to take more math and science and to make sure those courses are rigorous enough to compete with other nations…. train 70,000 high school teachers to lead Advanced Placement courses in math and science, bring 30,000 math and science professionals to teach in classrooms and give early help to students who struggle with math, so they have a better chance at good high-wage jobs.

Ah, a perfect second-term-Clintonesque initiative. What happened to conservatives’ faith in free markets to deliver new technologies? What happened to Bush’s criticism in paragraph two of those who think “the government needs to take a larger role in directing the economy, centralizing more power in Washington”?

Things not mentioned in last night's speech: Poverty (up since 2000). Real median household incomes (stagnant since 2000). Income inequality (up since 2000). Household savings rate (down since 2000, and negative for 2005). Trade deficit (way, way up since 2000, potentially leading the US to financial collapse in the next few years).