When the economy is doing well, presidents tend to spout growth rates and historical comparisons in their State of the Union speeches, while leaders of the other party suffer through the speech. If a president is presiding over a downturn, he feels their (and everybody's) pain, tortures a few numbers to suggest things are not that bad, and describes a way forward.
But -- despite the serious economic challenges the country faces -- we heard little about it last night. The economy and economic policy got short shrift, with one or two statistics (4.6 million jobs and four-plus years of uninterrupted growth), a few sentences on health care, a few lines on tax cuts, and a smattering of education. Sometimes what presidents don't say speaks volumes. It's worth pondering why the economics section of the speech was light.
First, many things are not going Bush's way right now. A few days ago, we learned the real GDP rose 1.1 percent in the last quarter of 2005, the worst growth rate in three years. Before that, the Bush team could brag of at least moderate growth rates, but their Achilles' heel was that the growth wasn't trickling down -- it was gushing up.
In fact, the morning of the speech, we at the Economic Policy Institute released a note showing that, according to Bureau of Labor Statistics data, one of the broadest measures of wage growth in the economy fell about 1 percent in real terms last year. The administration's rap had been, “Pay no attention to the wage squeeze. With rising health costs, employers are just taking dollars from the wage side and plowing them into health benefits.” Except real compensation was essentially unchanged (down 0.2 percent) in 2005. And this was yet another year with strong productivity growth.
The fact is that profits, which soared over the last few years, are squeezing both wages and compensation. The president is right about the economy growing for four years. But the distribution of that growth has been highly skewed. It's possible the administration truncated the usual “ain't we great” rap here because of the dissonance it might cause with so many Americans working harder yet still falling behind.
Oh, and that 4.6 million jobs. It sounds like a big number, but that's half the rate at which jobs were growing at this point in the last recovery. The rate of job growth over the period to which the president referred was 3.6 percent; the historical average for comparable periods in the past is 8.4 percent. In fact, that remaining slack in the job market is one reason real wages are doing so badly (faster energy-induced price growth is another).
It also seemed, to me at least, that another reason for the shabby treatment of domestic policy was that the president isn't that engaged in this stuff anymore. Sure, he'd like to cut more taxes, but, especially given the flop of his 60-city Social Security tour, the fire in his belly is all about 9-11, the Iraq war, domestic spying, and intimidating the wimps who refuse to see it his way on foreign policy. But enough psychoanalysis. Here is a look at some of the president's recommendations.
Don't Let the Sun Go Down: The president touted his $880 billion in “tax relief” and tried to connect those dots to the ongoing economic recovery. To see the stretch in this argument, check out this analysis by my EPI colleague Lee Price, but it's a typical State of the Union move to make such connections.
There were, however, two pretty egregious parts that followed. First, there was this crazy argument that if we stick to the law and let the tax cuts sunset (they're set to expire over the next few years), “American families will face a massive tax increase they do not expect.”
Do not expect? The cuts were sold on the basis that they'd expire by the end of this decade. That's the only way the president and Congress could at least create the illusion that they could control the deficit that the cuts helped to create. Their expiration is on the books; that's hardly unexpected. We all understand that powerful forces would like to extend them, but there can be no doubt that making the tax cuts permanent involves new tax cuts, and there are many in Congress, including Republican moderates, who may not be so quick to sign off on these new cuts.
The other objectionable part here was the president's equating good stewardship with cuts in “non-security discretionary spending.” What's really being said here is that given these massive tax cuts, they've got to make a show of cutting spending. But they can't go after entitlements or defense, or any of those programs with big lobbyists behind them, which leaves Medicaid, food stamps, student aid, child support enforcement -- these are what our benighted fiscal stewards are going after, and they're actually making “progress.”
Attention Health Care Shoppers: The president was expected to say more here, but again, his heart wasn't in it. The administration will soon be offering expansions of Health Savings Accounts, their major health care initiative. These are personal accounts (sound familiar?) where you can save and withdraw money tax free for medical expenses. To join the program, you have to purchase an insurance policy with a high deductible. These policies cover the really expensive stuff, but for the rest of your care, you pay out-of-pocket.
The idea is that by shifting the costs for the small stuff from their insurers to their wallets, consumers will become better health-care shoppers. This is not the place for detailed analysis but many economists don't believe these plans will save money or lower health costs, and most people -- surprise -- are not interested in bearing more costs, even with the tax incentive.
Which isn't to say there's not a big problem in need of a solution here. To his credit, the president acknowledged last night that it isn't really Social Security that's going to gobble up the economy; it's health care. HSAs won't change that one whit, nor will it do much to address the plight of the 46 million uninsured Americans.
And by the way, the president did admit his team has no idea what to do about the health-care challenge, i.e., he announced a bipartisan commission to study the coming pressures on Medicare, Medicaid, and Social Security.
Speaking of admissions, the impressive part of the speech was the president's acknowledgement that “America is addicted to oil,” words that don't come easy to an old oil guy (I imagined a big sneer from Cheney when he heard that). But here again, as the The New York Times put it this morning, “… the goal was grand, the means were minuscule.” According to one analyst, the proposed new expenditures would just get renewable-energy funding back to its pre-Bush level.
After a nod to his guest-worker program, this part of the speech ended with some Clintonesque ideas about enhancing research and development and encouraging children to learn math and science.
But by then it was pretty clear that beyond cutting taxes, inveighing against “protectionists” (anyone who's concerned about the downsides of globalization), and incentivizing risk-taking as a health-care plan, the Bush administration's economic agenda has run out of gas. I suppose one could applaud that development but I find that too cynical. We face a set of economic challenges calling for true stewardship. We haven't had it for years, and we didn't get it last night.
Jared Bernstein is a senior economist at the Economic Policy Institute, a nonprofit, nonpartisan think tank in Washington, D.C. and author of the forthcoming book, All Together Now: Common Sense for a Fair Economy, published by Berrett-Koehler.
