Fact and Fiction in the “State of the Union” Debate

In last week’s State of the Union Address, President Obama replayed themes he had touched on here in North Carolina when speaking at Forsyth Technical College in December.[1] He spoke of competitive challenges and the danger of a loss of global leadership.

He spoke of countries like China and India “educating their children earlier and longer, with greater emphasis on math and science.” He told us that “in South Korea teachers are known as ‘nation builders’,” and that it was “time we treated the people who educate our children with the same level of respect.” He declared this to be the nation’s sputnik moment. He argued that the external threat, though now economic rather than military in nature, was as significant as that symbolized in 1957 by the unexpected Soviet leadership in space exploration. He called for a sustained American response to growing international competition, singling out the encouragement of innovation, the modernization of our infrastructure, and the funding of a general rise in educational performance as key needs now before us; and he used the same metaphor that had informed his earlier speech at Forsyth Tech– the metaphor of the overloaded airplane and the endangered engine. Speaking to Republicans keen to rapidly reduce the federal deficit, he said this on Tuesday:

I recognize that some in this Chamber have already proposed deeper cuts, and I’m willing to eliminate whatever we can honestly afford to do without. But let’s be sure we’re not doing it on the backs of our most vulnerable citizens. And let’s make sure what we’re cutting is really excess weight. Cutting the deficit by cutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may feel like you’re flying high at first, but it won’t take long before you feel the impact.[2]

So, in the wake of the State of the Union Address, are we now poised to reduce the federal deficit in ways that protect the engine of growth without adding further to the load on the back of our most vulnerable citizens? Sadly, it is likely that we are not. We are not because the Obama package is insufficiently radical to fundamentally alter the weight-engine ratio so vital to successful long-term air flight. We are not because, in the politics of contemporary Washington, members of Obama’s administration are obliged to seek common ground with a Republican Party, a section of which doesn’t want any federal airplane to fly at all, and the rest of whom seem determined to reinstall into that airplane the very engine that failed so badly less than three years ago.

To the Obama side of the Washington conversation, we should say this:

• The airplane is overloaded. We can all see that. It is not, however, that the plane is overloaded because it has become unusually large. The Republicans are quite wrong on that. [3] It is rather that, as a plane of whatever size, the federal budget carries two huge and unnecessary burdens. It carries the burden of a health care system whose internal inflationary dynamics leave us spending a third more of our GDP on health care than do the best of the rest abroad, even though we still currently leave 50 million Americans without health cover of any kind. It also carries the burden of two major wars – the one George W. Bush chose to wage in Iraq, and the one Barack Obama chose to escalate in Afghanistan. We are literally now having to choose between butter and guns. U.S. military expenditure has more than doubled in a decade. At $895 billion (24% of all federal spending), the defense budget is larger even than that for health care, and twice that for all forms of federal welfare spending.[4] That would matter less if the military spending was to purpose, but it is not. Health care spending brings real relief to Americans battling life’s journey, but what does the military effort in Afghan bring us, or indeed even the Afghans? The current war is proving to be as much a quagmire as was the Iraq war before it. We’re now spending $100 billion a year in Afghanistan. By 2014, on present trends, we will have spent $700 billion there.[5] That is a lot of money that could have been better deployed elsewhere. The case for addressing health care costs was touched on by the President on Tuesday, but the case for bringing the troops home – directly and with speed – was not. That silence was one of the two sins of omission that the President committed in the State of the Union: the two that, for many of his progressive supporters at least, drained his speech of much of its credibility and force.

• The other was his singular failure to address the current crisis in the funding and employment of those teachers of whom he spoke with such admiration. He failed to make the link between his goals and their condition when speaking at Forsyth Tech in December, and he failed to make the link again when repeating the same call to educational arms in the SOTU. In North Carolina right now, the state-wide university system is facing up to a15% budgetary cut, as indeed is the school system of which Forsyth Technical College is a key part. And North Carolina is in no way unusual. State budgets everywhere are in freefall, and this is no small matter when state and local governments contribute 15% of GDP and employ one worker in seven.[6] State revenues on average fell a staggering 30.8% percent in 2009, and are poised to fall further in 2010 when the cushioning impact of the original federal stimulus money runs out.[7] State pension funds made big investment losses in the depth of the recession, tax revenues fell, and demands on state welfare and health care budgets rose as unemployment and poverty intensified. State governors are already hunting ways of cutting parts of the Medicaid program that are discretionary, and making inroads into the pensions, job security and wages of state employees. Large numbers of education workers have already been laid off; and more will follow. This is hardly deficit-reduction that avoids pain to the “back of our most vulnerable citizens.” Cut the teachers, and you hurt the children – there is no way round that, you add to the pain – it is pain that in the short term can only be prevented by increasing federal spending assistance to state budgets that in many cases hover on the brink of bankruptcy.[8] The President may insist to hard-line Republicans that we need to cut more slowly and cut less, but where in the speech was there any defense of the argument that in our current conditions the federal government actually needs to spend more? All that was on offer was educational reform on the cheap – the modestly funded Race to the Top[9] – but the President deludes himself and us if he thinks that a general crisis of educational funding can be solved by intensifying competition between one underfunded state and another.

Not that the Republican answer was any better. It was, on the contrary, significantly worse.

• The Tea Party version, delivered by Michelle Bachmann, was literally terrifying in its indifference to data.[10] Facts seemed to exercise no constraint on the pursuit of fantasy there. Correlations slid into causes with no explanatory linkage. Governments spent. Unemployment rose. The rise in unemployment invalidated the spending. There was no financial crisis in the Bachmann telling of this story. No recession caused by the collapse of the credit system. No notion that unemployment may have been higher but for government spending. Just high corporate taxes sending jobs overseas; and this in the very week that the UNC comparative report on corporate taxation publicized by Bloomberg Businessweek showed that “U.S. multinational corporations paid 26 percent on average, compared with a global average of 25 percent.” [11] Instead of facts, we were treated to statements of faith: a belief “in lower taxes, a limited view of government, and the exceptionalism of America.” That faith put every department of government on notice, with the possible exception of the Pentagon – that departments faced no recognition of the importance of their function, and no ultimate solution to their existence but closure. Rand Paul has already named HUD, the Education Department and the Commerce Department as departments to be closed, yet collectively those three are responsible for at most 5 percent of the total federal budget. This is not a case of legitimate worries about the deficit driving policy. It is a case of pure anti-statist dogma masquerading as serious economic thought, and needs to be labeled and resisted as such.

• Paul Ryan was little better. He painted a picture of an ever expanding deficit and associated taxation, as though federal spending was the only thing that would ever grow – that the economy and its tax base would not. Nowhere in his response was there any mention of the $690 billion added to the federal deficit over 10 years by the permanent tax cuts for the top 2% of U.S. income earners on which he and his colleagues had insisted.[12] Instead, his was the standard, “cut the deficit, free up the private sector” argument, as though federal spending was the barrier to private sector investment and hiring again. As he put it, “limited government will unshackle our economy and create millions of new jobs and opportunities for all people, of every background, to succeed and prosper.”[13] But corporate profits and cash retention levels rose rapidly in 2009 and 2010, as investment levels remained sluggish.[14] What stood in the way of private sector investment and job creation then – and what stands in its way now – is not government spending. Indeed there is strong evidence that many U.S. businesses are concerned about the adverse impact on their sales and tax position of too rapid an implementation of Republican Party-induced austerity.[15] It is a lack of confidence in consumer spending that is currently holding back private sector investment; and it is high levels of unemployment, job insecurity and home foreclosures that is holding back consumer confidence. Republicans like to look to the UK as testimony to their case, glorying in the Conservative-led coalition’s cutting of public spending. But watch what you wish for: rapid deficit-reduction in the UK tipped the whole economy back into recession in the last quarter of 2010. Consumer confidence there is currently at a 30 year low, and unemployment is steadily rising. A fifth of recent university graduates in the UK are now unemployed, the highest rate of graduate unemployment there in more than a decade. The Obama administration may not be doing enough to pull this economy round, but the real vandalism is not theirs. The real vandalism lies on the Republican side of the aisle.

In the cloistered world of Washington, Republican prejudice against the developmental role of government acts as a magnet, pulling the focus of debate away from the fundamental progressive reforms of foreign policy and public investment so vital to our long-term prosperity. The State of the Union Address is always political theatre at its most carefully orchestrated. It is always the one moment in the annual political calendar when the nation has the opportunity to hear the president’s general understanding of our internal and global condition, and glean his view of how best to strengthen both. It is always the one moment when the entire Washington class goes on television together. But given what members of that class are currently choosing to say to one another – given what passes as conventional wisdom in Washington these days – they would do themselves (and us) greater service by gathering together less often and gathering in public rarely at all. Because whatever else they were discussing last Tuesday, it was not the true state of the union. It was anything but the true state of the union. What should disturb the rest of us most is that on Tuesday our political leaders seemed so blissfully unaware of the level of their disconnect from reality.

---

[1] For commentary on that speech, see https://www.davidcoates.net/2010/12/09/president-obama-and-this-generation%E2%80%99s-%E2%80%9Csputnik-moment%E2%80%9D/

[2] The full text is at http://www.whitehouse.gov/the-press-office/2011/01/25/remarks-president-state-union-address

[3] Contrary to the Republican claim that the federal government is too large, the share of GDP passing through the hands of both US federal and state governments is actually less than that going through the hands of governments in other major industrial democracies – less currently than any major western government but those in tiny Switzerland and Luxemburg. In fact, taking the post-war period as a whole, “non-defense federal spending has been fairly steady at 2-3% of GDP. Defense spending registers as larger (often substantially larger) than non-defense spending, and state-and-local–governments are responsible for almost two-thirds of total government spending.” It is, of course, state and local government spending which is now so under pressure (see footnote 7). This from Bruce Chadwick, Government Spending as a Proportion of GDP, available at http://www.chadwickresearch.com/blog/?p=124

[4] Data at http://www.usgovernmentspending/com

[5] Figures from Katrina vanden Heuvel, ‘The costs of war,” The Washington Post, December 21, 2010. For the argument that the war in Afghanistan is not going well, see Robert Greenwald and Derrick Crowe, Failure, not Progress, in Afghanistan, available at http://www.huffingtonpost.com/robert-greenwald-and-derrick-crowe/failure-not-progress-in-a_b_797215.html

[6] David Wassel, “What Sent States’ Fiscal Picture into a Tailspin?” The Wall Street Journal, January 27, 2011, p. A5

[7] Data at http://www.census.gov/govs/state/. And at US Census Bureau, State Government Finances Summary: 2009, available at www2.census.gov/govs/state/09statesummaryreport.pdf. Commentary at http://www.washingtonpost.com/wp-dyn/content/article/2011/01/05/AR2011010505798.html

[8] See James Politi, ‘Move to allow state bankruptcy,” The Financial Times, January 22-3, 2011, p. 4

[9] So far, we have seen 13 states winning, so 39 losing: 13 winners, plus Washington DC.

[10] The full text is at http://nationaljournal.com/congress/full-text-michelle-bachmann-response-to-the-state-of-the-union-20110125

[11] “The Fact Checker: Obama’s 2011 State of the Union Address,” The Washington Post, January 26, 2011. General Electric apparently paid 11.5 percent of its revenue in corporation tax, while Siemens paid the German government 29 per cent of its!

[12] The increase in the CBO’s new projection – of a federal budget deficit of $1.5 trillion in 2011 – some 9.8 percent of GDP – was explained by the CBO director as almost entirely the result of the tax package agreed by the President and Congressional Republicans in December. (Details in Lori Montgomery, “CBO projects U.S. budget deficit to reach $1.5 trillion in 2011, highest ever,” The Washington Post January 27, 2011). For calculations on the cost of permanently extending the tax cut to the top 2% of U.S. taxpayers, see http://www.americanprogress.org/issues/2010/11/bonus_tax_cuts_fade.html

[13] The full text is at http://www.cbsnews.com/8301-503544_162-20029571-503544.html

[14] For the latest data on sluggish investment, see Adam Hersh, The Missing Ingredient in Our Recovery, Center for American Progress, January 28, 2011: available at http://www.americanprogress.org/issues/2011/01/recovery_gdp.html

[15] For data on U.S. business unease with the Republican deficit cutting agenda, see James Politi, “US business cool on cutting deficit,” The Financial Times, January 24, 2011

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

This entry was posted on Sunday, January 30th, 2011 at 8:25 pm, was written by David Coates, and is filed under US Blog. You can leave a response, or trackback from your own site.