I decided to term this (as a signficant number of others) Obama's State of the Union address, although most refer to it as his first Congressional address. There has been a more recent tradition (starting with Reagan) for first-year Presidents not to give a customary January State of the Union address, given the proximity of their inaugural address. However, the first Congressional address fulfills the Constitution's requirement that the new President "shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient".
"Tonight I want every American to know this: We will rebuild, we will recover, and the United States of America will emerge stronger than before." Well, after weeks of Obama talking down the economy, this is a more positive message, although he had by that time already reminded us "our economy is in crisis". I'm not sure he himself is convinced of what he is saying any more than the new manager of last year's cellar team vows this will be the year they go all the way to the World Series. The choice of words is odd, more apropos for a country whose infrastructure has been devastated by war. (I think he's really addressing here how he intends government to "solve" the problem--by focusing on infrastructure repair.) Even as optimistic as I am about the ability of the American economy to recover despite Obama's meddling, which I believe if anything will slow the time to recover, Obama's claim that America "will emerge stronger than before" seems questionable. We have gone from households living beyond their means to a government spending beyond its means, grabbing the highest percentage of GDP than in decades, adding trillions to the national debt. This is BEFORE tackling entitlement reform. But the need to finance the debt may crowd out government spending or private investment, we could find foreigners increasingly reluctant to buy American debt, which would probably escalate interest rates. At the same time young Americans will be facing tougher global competitors.
I'm not trying to do the flip side of Obama by talking down our future. In fact, I'm positive over our future, but I am not going to underestimate the challenges or raise unrealistic expectations. I'm less optimistic about Democrats restraining themselves from permanently increasing the costly government footprint and trying to engage in ruinous class warfare vs. shared sacrifice.
"Our economy did not fall into decline overnight...We have known for decades that our survival depends on finding new sources of energy, yet we import more oil today than ever before.The cost of health care eats up more and more of our savings each year...we have lived through an era where too often short-term gains were prized over long-term prosperity." Obama is engaging in polemics here. Part of the reason we are importing more oil than ever is not because our use of oil is increasing, but because our own domestic production is falling, and there have been Congressional, environmental and legal barriers for developing replacement sources, e.g., in the Artic Reserve or offshore. I would also argue that there hasn't been a lack of effort in looking at alternative sources of energy, but they are currently uncompetitive without massive subsidies, and there are significant issues with many types (including economical storage mechanisms) Similar comments can be made about health care reform. Part of the problem has to do with government meddling, including state-specific expanded/gold-plated benefit requirements, policyholders with no incentives to shop for lower priced items, skyrocketing malpractice insurance costs, and a tax bias to insuring through employers. What Obama doesn't seem to realize here is the private market does respond without a bias of political intent. For example, at $140/barrel of oil, substitute forms of energy become economically viable.
I think Obama's strongest insights here involve short-sighted political goals, including the fact that social security and Medicare funding issues have been deferred to subsequent Congresses and the GOP Congress between 2003 to 2006 unable or unwilling to crack down on sharp spending increases, our increasing national debt and our failing schools.
"A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future." Sheer demagoguery here. First of all, the balanced budget under Clinton (and a Republican Congress) to a large extent reflected the impact of capital gains in a superheated stock market and an economy awash in easy Fed money, to some extent in response to an overhyped Y2K crisis; the Bush tax cuts were enacted in a difficult period marred by a recession in the aftermath of the Nasdaq bubble burst (inherited from Clinton), 9/11, and the corporate financial scandals--all of which Obama glosses over in his ludicrous straw man argument of trying to assert greed; tell me, Obama, if the rich were all so powerful and greedy, why didn't they force the poor and middle-class pay more taxes vs. the wealthy having to pay a disproportionate amount federal income revenue? Why Barack Obama is engaging in divisive class warfare, after preaching a more respectful tone and postpartisan behavior, is beyond me. This is the Democratic world view of a zero-sum environment that the rich get ahead not by organically growing their businesses but at the expense of a lower class. The rich are more likely to put more capital in play when business or investment tax policy is accommodative; they take the risk and can reap significant returns in the long run. It can take years until a business turns profitable. As for the lower middle-class struggling to keep up, it's not necessarily because of employer exploitation. It has more to do with labor market supply-and-demand. The Dems are fond of pointing back to the Clinton "golden years", but the fact is that the Federal Reserve flooded the economy with money which resulted in the Nasdaq bubble (and inevitable bust). The job market was juiced, with many kids dropping out of college to take $40-50K jobs without experience. The real key to higher income is mastering in-demand skills.
"Regulations -- regulations were gutted for the sake of a quick profit at the expense of a healthy market." This is really a cheap shot at the Bush Administration and the GOP. This is the myth that the GOP was all about deregulating things, when, in fact, the number of regulations exploded under the Bush Administration. The biggest red herring was blaming 1999 Gramm-Leach-Bliley which simply allowed financial services firms to diversify. As Gramm pointed out in a recent column, what failed last year were not the diversified companies. What Republicans opposed were not essential regulations but market-intrusive regulations.
"Now is the time to jump-start job creation, re-start lending, and invest in areas like energy, health care, and education that will grow our economy." The way you jump-start job creation is by minimizing the government footprint, which is a barrier to business entry. Jobs follow robust business growth; if energy, health care, and education are intrinsically higher-growing sectors, they will attract relevant capital without having Obama champion and bankroll the sectors at the expense of future taxpayers. I don't want Obama picking and choosing winners from the private sector. What Obama could do is provide improved public information for consumer behavior, lessen anticompetitive state barriers to marketing of health insurance (e.g., allow a bypass from expensive mandates or from having to accept customers after they become sick), etc. There are things Obama could have offered, like catastrophic health insurance, a compromise Dole offered Clinton in his first term (and was turned down). I could support that, so that no family would be forced to go bankrupt to cover out-of-pocket costs.
"I asked this Congress to send me a recovery plan by Presidents Day that would put people back to work and put money in their pockets, not because I believe in bigger government -- I don't -- not because I'm not mindful of the massive debt we've inherited -- I am." Obama doth protest too much, methinks. He's just announced that he wants a bigger government footprint in energy, health care, and education; he's also denounced what he considers a lack of regulations. The size of the so-called "stimulus" bill is almost $800B, only a small fraction of which is deployable in target infrastructure projects over the next 6 months. Why was it necessary to push a package beyond some rigorously screened infrastructure projects and some relief spending? If Obama was really worried about the national debt, why, for instance, hasn't he taken an ax to federal operations, just as local and state governments have had to do to balance their budgets? Why has he deferred fulfilling the promise he made during the Presidential debates that he would carefully filter out earmarks, some 9000 of which appear in the current budget omnibus bill, including the President's first 9 months in office? Are federal dollars wasted in the first 9 months of his Presidency less equal than during his first full fiscal year?
"A failure to act would have worsened our long-term deficit by assuring weak economic growth for years." Are you kidding me? Obama has been threatening tax hikes on investors and high-income job creators, he's pushing "cap and trade" legislation, which is really an energy tax, which will affect all Americans, and he's massively pumping up the national debt which could backfire in the form of high interest rates and/or crowding out investment in the job-creating private sector, particularly if foreigners prove unwilling to purchase new Treasury bills. Some of these things are self-inflicted wounds; for instance, there is no bandwagon for cap and trade.
But more to the point, Obama is arguing that his particular proposals are better than more modest, focused bills and/or letting the private sector find a bottom and consolidate. What hubris! Only an ideologue could assert that; in fact, two UCLA economists (Ohanian and Cole) claim that FDR's policies actually prolonged the Depression by 7 years. [I'm not arguing here that Obama is taking a page from FDR's playbook, but one would think his advocacy of and confidence in a government-based solution would be tempered by the FDR experience.] FDR's Treasury Secretary Henry Morgenthau said in 1939: “We have tried spending money … and it does not work … we have just as much unemployment … and an enormous debt to boot.”
"Because of this plan [the so-called stimulus bill], there are teachers who can now keep their jobs and educate our kids. Health care professionals can continue caring for our sick. There are 57 police officers who are still on the streets of Minneapolis tonight because this plan prevented the layoffs their department was about to make." Oh, spare me the histrionics, Obama! The federal government is not the employer of health care professionals, teachers or police officers. Local and state governments have to live within their means; there are different ways of cutting the budget, including laying off administrators, cutting salaries or training and travel budgets, deferring purchases, etc. [But unconscionable politicians, in particular Democrats, always want to recast a budget cut in terms of direct services to the public; laying off an archivist is not as newsworthy as a police officer on the beat.] Money is fungible. The federal government should not be aiding and abetting the state and local governments' attempt to escape responsibility for politically unpopular decisions involving budget cuts. I don't expect Obama would have gotten as big an applause line if he said, "Look, I'm going to put California's bills on your grandkids' tab; it's an important precedent for Sacramento lawmakers to know that if they continue to spend beyond their needs, the Congress and President will be there to bail them out in the future."
"And we have created a new Web site called recovery.gov so that every American can find out how and where their money is being spent." This is one of the few initiatives I can support. Most fiscal conservatives like sunshine and transparency laws. It's a question of the nature and extent of what is reported, how responsive the system is to resolving problem tickets, etc. I also would caution against unrealistic expectations; for example, John McCain moved to set aside the 9000 earmarks in the omnibus budget deal, but his amendment was defeated 2-1. Many politicians (e.g., Senator Byrd) see earmarks as validation of their public service and run on their ability to win earmarks..
"First, we are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small-business loans to the consumers and entrepreneurs who keep this economy running.Second -- second, we have launched a housing plan that will help responsible families facing the threat of foreclosure lower their monthly payments and refinance their mortgages.Third, we will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend."
I disagree with the very concept of government competing against the private sector for auto loans, college loans, etc. This is the same type of thinking that resulted in GSE's Fannie Mae and Freddie Mac dominating the home mortgage industry with an unfair advantage of cut-rate loans from the government and thereby created a systemic vulnerability for taxpayers. The home mortgage plan is problematic for a variety of reasons, including a big one with moral hazards and it may simply defer foreclosures (at taxpayers' expense). The involvement of the federal government with the big banks was, in many cases, unwanted, especially the meddling of the government in their business.
"This time -- this time, CEOs won't be able to use taxpayer money to pad their paychecks, or buy fancy drapes, or disappear on a private jet. Those days are over." Pathetic, cheesy applause line. Since then has the federal government been paying for corporate office furnishings, travel, or bonuses? Obama is plainly saying that by saying "this time"; since when has Congress authorized payment for private sector expenses? Perhaps Obama is talking about taxpayer money invested with Northern Trust--the same company, which Obama hopes people will forget, gave him a sweetheart jumbo mortgage deal on his $1.6M mansion--while the company has continued to support certain prescheduled events, which are unseemly under current circumstances. Let us not forget not all banks wanted or needed federal funds but allowed deposits under heavy political pressure. What these reluctant banks all knew was that there are political strings attached to any such money, and Obama would use any such opening to try to micromanage bank operations. I would suggest that Obama would be better served by focusing on reforming inefficient, ineffective government operations and not interfering in the internal affairs of the private sector, which is responsible for most jobs and job growth. As for the private sector, as an investor, I would like to see some reforms in terms of shareholder rights and more board independence. I am skeptical of the management case justifying private jets, lavish expense accounts, huge bonuses, etc., but I believe that shareholders have the ultimate vote in terms of selling the security, and any company which unduly raises costs puts itself at a competitive disadvantage.
But Obama's politics of envy is at question here; I personally may not believe that any golfer is worth $30M a year, but sinceTiger Woods is able to draw paying crowds to his events, the market makes that decision. I certainly don't begrudge Tiger's success, the drapes he buys for his home, or if he hobnobs with billionaires flying private jets. It's up to me to make my own success in this world, not depend on Obama's getting a slice of Woods' hard-earned dollars to spread the wealth around.
"And to ensure that a crisis of this magnitude never happens again, I ask Congress to move quickly on legislation that will finally reform our outdated regulatory system." Tell us, Mr. Obama, who is going to save us from the Barney Franks whom jawbone lenders into taking on riskier homebuyers with less than a conventional 20% down? Or the Federal Reserve flooding the economy with cheap money resulting in a real estate bubble? Or credit rating companies and accountants failing to detect how bad financial services firms were? Didn't the Federal Reserve have the right and obligation to prevent gimmick ARM's?
"It's not about helping banks; it's about helping people." Ah, just what we need: some smug, condescending liberal Democrat patting himself and his colleagues on the back, because all pro-big government politicians just care about helping people, and bankers are obsessed about their own self-interests, not the services they provide their customers. Let me make myself clear, Obama. We don't need lectures from a party which protected a gay Congressman whom had sex with a 17-year-old page and a President whom violated sexual harassment policies and lied to an Arkansas judge, backed a Louisiana Congressman caught hiding bribe money in his freezer, reelected a Democratic mayor of New Orleans whom instead of carrying out an evacuation in advance of Hurricane Katrina left buses to flood out in a low area, and in the middle of the largest recession in decades still found time to add 9000 earmarks, solely for political self-interest, adding to the tab to be handed to our children and grandchildren. There's a big difference, Obama, between the federal government and a bank. If a bank doesn't provide good service, you can immediately take your business to another bank. If the country hires a smooth-talking, congenial used car salesman President not up to the job, we have to wait 4 years to throw him out of office.
"The budget I submit will invest in the three areas that are absolutely critical to our economic future: energy, health care, and education...we will double this nation's supply of renewable energy in the next three years...I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America."First of all, I believe that solar and wind power account for about 1.1% of US consumed power. [If he's referring to hydroelectricity, the number of dams nationally is continuing to shrink.] So doubling that energy would amount to 2.2%? At what cost? The cap and trade program doesn't "drive" more renewable energy (getting past all those pesky scalability issues); it simply raises costs on energy production WHICH IS PASSED ALONG TO THE CONSUMER. The only thing market-based about it is marketing credits for money. Obama fails to tell the American people that the Europeans have been practicing cap-and-trade for some time, and the results are rather mixed at best. Second, Obama seems to confuse the concepts of investing and spending. He also fails to point out the results of, for example, the Massachusetts experiment with health care which has ballooned in costs far beyond expectations. Third, the core issues with energy, health care, and education are not crying out for government intervention but from a lack of economic liberty, in particular, a goverment footprint (regulations and other barriers to entry) which de facto rules out meaningful competition.
"I do not accept a future where the jobs and industries of tomorrow take root beyond our borders, and I know you don't, either. It is time for America to lead again." Let's get this straight, Obama: You want American commerce to lead the way, but you maintain one of the highest corporate tax brackets in the developed world, you are talking about increasing income and investment tax rates and lowering deductions for higher-income taxpayers and small business owners (whom already pay a disproportionate amount of taxes), you are talking about increasing government regulations, you have inserted the government into multiple industries and threaten others, and you have still have not closed free trade pacts with South Korea and Colombia. When it comes to education, you have to face the fact that we are not graduating enough mathematicians, engineers and scientists, which requires a rigorous education. Yet teacher unions have protected the status quo monopoly, fending off the efforts of desperate lower-income parents seeking assistance to place their kids in better charter or private schools, refusing pay differentials and merit pay for in-demand math and science teachers, and blocking reforms for higher standards, objective performance benchmarks, flexibility of administrators to assign teachers to tasks, and improved authority to fire unsatisfactory teachers. I am opposed to more federal dollars for public schools unless it is tied to educational competition. As for college, I'm more interested in helping expand degree pipelines for in-demand professions like nurses and engineers, for colleges more receptive to national service recruiters (e.g., military, intelligence agencies, etc.) and/or underserved communities (e.g., family physicians in urban and rural areas). I'm less interested in the government indiscriminantly offering more loans so that colleges discount their aid packages accordingly or to unfairly compete against private sector lenders.
"Speaking of our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink. We should not and will not protect them from their own bad practices. But we are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win." Hmmm. What's wrong with this picture? The US automakers cede the small car market; well, the margins are too small anyway. And it doesn't matter, because even though the US has been importing more oil than it produces for decades, the people really want to buy our low-mileage trucks, SUV's, and sports utility vehicles. After all, if foreign car companies can design a low-cost, high-quality small car, why, they'll never figure out how to compete in the higher-margin segments, right? And our customers are willing to cut back on food and other necessities to pay $4/gallon gasoline, just so they can continue driving an American-built gas guzzler. With total compensation costs (including benefits) nearing $70/hour, at least a $15 differential over foreign automakers in the US, the automakers and their unions have been co-enablers and in a mutual state of denial. Whereas it is true that automakers have been devastated globally, the government should not be pickers and choosers of industries (it sets a bad precedent); GM and Chrysler are on the verge of bankruptcy, not because of the recession but because of a bad financial sheet, liabilities and constraints and a lack of confidence in management. I definitely don't want Obama personally approving car designs; the only thing worse than the gang running the auto industry and the autoworker unions is even more incompetent liberal politicians using government assistance as a backdoor to impose their agenda on company management.
"When it was days old, this Congress passed a law to provide and protect health insurance for 11 million American children whose parents work full-time." Obama here is referring to SCHIP expansion. What he didn't say is that the Democrats unilaterally dropped a 5-year waiting period for new immigrants; they also tied funding for the expansion with a tobacco tax (a form of regressive taxation which unfairly singles out tobacco users, plus it puts the program with a vested interest in perpetuating a bad health risk) We also have the moral hazard issue of lower and middle-income parents possibly dropping their own coverage to have the state and federal government pick up their health care. The idea of expanding the program when, in fact, a significant number of already eligible poor families are unenrolled is problematic.
"Our recovery plan will invest in electronic health records and new technology that will reduce errors, bring down costs, ensure privacy, and save lives." Obama is hyping a Rand study which suggests $77B savings per year. The nonpartisan CBO disagrees, saying that additional steps must be taken to reduce expenses--but even then that may not reduce costs (e.g., an expansion of enrollments). There are a number of issues, including the time and expense of converting a lifetime of medical records (quite often, when these things happen in the private sector, you see only the most recent years covered).
"The cost of the crisis we face, and the long-term challenges we must meet, it has never been more important to ensure that, as our economy recovers, we do what it takes to bring this deficit down. That is critical." Pardon me if I regard that claim with skepticism. This is a guy whom just signed a so-called stimulus bill, which included only a fraction of the almost $800B available in the short term, an interim budget bill that included some 9000 earmarks, and an expansion in federally-sponsored health care. Many of these outlays are "temporary" in nature, but Congress has a habit of making such increases permanent and ongoing. And government spending at the highest percentage of the GNP in decades. And we aren't even talking about social security and Medicare funding crises. Now how does he plan to close the deficit?
"In order to save our children from a future of debt, we will also end the tax breaks for the wealthiest 2 percent of Americans....If your family earns less than $250,000 a year, a quarter million dollars a year, you will not see your taxes increased a single dime. The recovery plan provides a tax cut -- that's right, a tax cut -- for 95 percent of working families." This is just warmed-over bunk from the general election campaign. The fact is some 40% of working Americans pay no federal income taxes and I've seen some figures with various proposals that that number will effectively come close to nearly half. Imagine: almost half of working American with no vested interest in terms of ensuring American tax revenues are spent efficiently, because it's not their money. But, of course, Obama is intending to give working families paying no income tax so-called tax cuts/rebates. That isn't a tax cut--that's welfare. Plus, Obama is being disingenuous here, because the cap and trade energy tax, a capitulation to Gore-style alarmist environmental rhetoric, will cause energy costs to jump up. Also, I've seen some estimates even if you were to confiscate all top-earner income, it would cover only a fraction of Obama's spending, and pardon me if I think his numbers are overly optimistic.
"And that is why I can stand here tonight and say without exception or equivocation that the United States of America does not torture. We can make that commitment here tonight." That's really an unfair shot at the Bush Administration, implying it did condone and/or participated in torture, which is nonsense.
Conclusion
I thought some of the stories at the end of the speech were effective, in particular, the story of Leonard Abess, a bank president, whom cashed out, taking a $60M bonus and then, without publicity, spreading it out to nearly 500 current and former employees whom had worked for him. Obama seems to think it validates his philsophy that it's good to spread the wealth around. However, the anecdote brings a couple of things to mind--how earlier in the speech he jawboned greedy bankers and corporate executives, and that people prefer to do things, including charitable and generous acts, on their own, without the government confiscating the same income and arbitrarily wasting the money on ineffective social spending programs.
On the matters of foreign policy, I think his ideas were more tactical, with acknowledgment of somewhat contrary principles, e.g., American leadership but greater reliance on alliances.
Obama is a gifted orator and arguably one of the most articulate Presidents over the past 50 years. Unfortunately, his eloquence masks the dearth of original ideas and substance. He has the irritating habit of asserting things, goals which I don't really think he himself really believes, a manufactured soulless optimism. More importantly, he is promoting a stealth radical social democratic agenda, while posing as a philosophic centrist.
Conservatives will have a difficult time dealing with Obama, because he has a knack for coopting their agenda (e.g., meeting or beating conservative tax cuts to lower/middle-income Americans) and anticipating their arguments. Furthermore, Obama can play a game of good cop/bad cop where Nancy Pelosi and Harry Reid do the dirty work of steamrolling the Republicans. The Republicans are already losing the public relations battle as the public sees them as obstructionists, even though they barely have enough senators to threaten a filibuster, and the Democrats refuse to negotiate in good faith.
The Republicans need to seriously challenge Obama, but in a respectful way. This means vigorously debating any stealth social democratic agenda, questioning his numbers, making Obama eat every cost overrun and revenue shortfall, noting Obama's broken promises, and providing a constructive lower-cost, more effective alternative to Democratic initiatives.
