The President’s 2012 economic policy agenda emphasizes four policy challenges:
- the loss of American manufacturing employment;
- America’s dependence on oil;
- America’s sub-par (my phrase) education and training; and
- increasing income inequality.
Each of these trends began decades ago:
- Our employment has been shifting from manufacturing to services for decades, as it shifted from agriculture to manufacturing in the 19th century (all while American manufacturing output continues to grow over time);
- We have been dependent on oil as a fuel source for oh, about 100 years;
- The seminal report on American education, A Nation at Risk, was published in 1983, yet it reads as if it were written this year; and
- Income inequality has been increasing since about the 1970s, while even the spike in inequality at the very high end is probably 20ish years old.
There is nothing wrong with prioritizing long-term economic problems and challenges; in fact, quite the opposite. Washington usually focuses only on problems and challenges that will bite before the next election.
- The President barely mentions the greatest long-term (and, increasingly, short-term) economic policy challenge we face, the size and growth of unfunded entitlement spending promises to the (current and future) elderly;
- The second greatest long-term economic policy challenge, closely related to the first, continues to be the unsustainable growth in per capita health spending, notwithstanding mistaken claims that the Affordable Care Act will slow that growth;
- The most urgent economic policy challenge we face is the slow recovery of the U.S. labor market, with housing weakness and macro/financial threats from Europe in a close second and third;
- In last year’s State of the Union address, President Obama framed the central policy challenge as infrastructure and public investment competition from China and India, something that doesn’t really make his top four this year (his manufacturing message is somewhat different);
- President Obama emphasizes frequently that he doesn’t want to “return to the policies of the past,” meaning the Bush era, yet these policies were not the cause of the problems he now stresses; and
- The President is not claiming that his proposed policies would solve even a significant portion of the problems he describes.
I would like instead to see the President set economic policy priorities like these:
- Clear out the barriers to private sector expansion and investment, in particular by reducing both the drags induced by recently enacted expansions of government and the massive uncertainty caused by lingering open policy debates;
- Stop trying to “fix” the housing market and let housing prices find a painful but market-clearing bottom so that more normal growth could resume;
- Make structural reforms to Social Security and Medicare and Medicaid that adapt them for inevitable demographic trends as well as evitable unsustainable promised benefit growth; and
- Aggressively expand international trade and investment rather than throw up protectionist barriers and rhetoric.
The massive recent and planned future expansions of government are the greatest threats to ongoing American economic strength in both the short and long term. Expanding the scope of government further as the President proposes will make things worse, not better.
(photo credit: Lawrence Jackson for The White House)