What to Look for in the State of the Union
President Obama will deliver his State of the Union this coming Tuesday, the 28th. It seems obvious that no big new policy initiative that requires action from Congress will pass in the next year, given DC gridlock. This is a real shame, because the crisis of joblessness and failure to fully recover from the Great Recession remains the single largest economic challenge facing the country, and solving it would require a serious course correction on policy. The most reliable fix for this crisis of joblessness would be simply allowing public spending to rise to levels that characterized every other recovery since World War II. Even better would be to allow this spending to rise to levels characterizing the recovery from the similarly steep early 1980s recession. In short, what is needed is not some historically unprecedented stimulus program, but simply an end to the historically unprecedented austerity program now underway.
And it’s pretty easy to specify where the first $25 billion or so of this spending should be allocated: extending the Emergency Unemployment Compensation (EUC) program for long-term unemployed workers—a program begun in June 2008 when the unemployment rate was significantly lower than today and when long-term unemployment was literally half as high. I’d be shocked if the president did not issue a forceful call to pass EUC for the upcoming year.
After this, a substantial program of public investment would be most welcome, boosting job-growth and economic activity in the short-run and boosting productivity in the longer-run. The talking point mobilized in favor of infrastructure investment—that it once was a bi-partisan priority—has the rare virtue of being true even today, so long as one listens to policy analysts and not politicians. For example, Martin Feldstein, Chair of the Council of Economic Advisors under Ronald Reagan, has endorsed a deficit-financed increase in infrastructure investment (granted, he endorses plenty of other things in that column that I’m not on board with, but the point remains). And Ken Rogoff, an economic adviser to John McCain in 2008, has also noted that infrastructure investment would be hugely beneficial in the current economic climate.1
Of course, new action to reverse austerity (after the recent compromise budget deal loosed its collar just a scoche) is hugely unlikely to happen, simply because Republicans control the House of Representatives and continue to believe in austerity’s virtues, all evidence to the contrary.
Given this political reality, it’s worth noting some other tools still available to help American workers.
One would be a commitment to substantially boost net exports in recent years. After falling and helping to stabilize the economy during the Great Recession, the U.S. trade deficit has crept back up and remains large at the end of 2013. If aggregate demand is to grow in face of stable or declining federal budget deficits (and we don’t want U.S. households to return to the historically low-savings pattern of the mid-2000s bubble era) the arithmetic is simply that the trade deficit must fall.
And for the trade deficit to fall, the value of the U.S. dollar relative to other currencies must fall. While the dollar has fallen against many significant trading partners, there remains a bloc of countries—with China being the most economically significant—that manage the value of their currencies, to keep them from rising against the U.S. dollar, and reap mercantilist benefits from this strategy. As they keep their own currencies from rising in value, their exports to the United States are made cheaper and U.S. imports to their markets are kept expensive.
There are plenty of tools available to U.S. policymakers—some with no need for Congressional approval—to engineer this decline in the value of the dollar. And if we’re not going to allow fiscal policy (i.e., public spending) to provide its traditional boost to recovery, then this sort of exchange rate policy remains the only other tool available to the policymakers in the room during the SOTU. Sadly, the trade-relevant portions of the SOTU are much more likely to include a call to severely limit debate on trade agreements currently under negotiation. Why this is so disappointing is a whole ‘nother blog, hopefully coming soon.
Finally, the U.S. economy has problems that go even beyond simply returning to the pre-Great Recession status quo regarding jobs and unemployment. The generation-long march towards ever-greater inequality in wages and incomes has strangled living standards growth for the vast majority of American households. Reversing (or even just checking) this rise in inequality requires getting wage growth in gear for these households. The menu of options to get wage growth moving is long (see some ideas at the end of the introductory chapter of the State of Working America, 12th Edition), but one too often overlooked subset of these options concerns building labor standards and institutions that provide real bargaining power for rank-and-file workers.
One example of this will surely make into the speech—a call to increase the federal minimum wage (and, crucially, a call to increase the minimum wage for “tipped” workers, which remains at a mind-boggingly low $2.13 per hour). Other examples, however, would reverse years of steady (but policy-induced!) erosion of labor standards in issues like: which workers are entitled to overtime compensation, or the steady decline (before the Great Recession) in the share of unemployed workers eligible for unemployment insurance or the steady de facto erosion of workers’ right to organize to form unions and bargain collectively or insuring that at least federal contracting dollars support high-quality jobs.
Movement on some of these issues requires legislation (the minimum wage), but movement on others’ do not (federal rules on who qualifies for overtime and federal contracting wages).
Because the items on this list that don’t require legislation is a collection of small-sounding issues that don’t by themselves lead to significant changes in workers’ bargaining power, they often do not inspire the passion or sustained commitment that “once and for all” type issues (like, say, insuring universal access to health insurance with one omnibus bill) do. But together they matter a lot, and having the president say that we need to begin a campaign to bolster low and middle-wage workers’ bargaining power by moving on such issues every chance we get would be a huge win for American workers in this speech.
1. Rogoff expresses the desire that this infrastructure investment spring forth from the private sector, but since it won’t, his analysis that it would be good the economy holds just fine for publicly-financed infrastructure increases.