Obama - State of the Union Address 2011

The Melman Report - Melmania January 27th, 2011

For the second time in his Presidency, Barak Obama addressed America and the world in a "State of the Union Address" (SOUA), an American tradition going back more than two centuries.

This year's SOUA was delivered under a most unusual background. Obama's party had just suffered a crushing defeat in the recent November elections by losing the second most Congressional seats in history. The voters had spoken, loud and clear, that they were tired of excessive government, they were tired of out-of-control spending and they were frightened regarding the long-term implications of a swiftly rising national debt.

However, Obama's chief problem at one and the same time is that his most vocal and dedicated supporters within the Democratic Party were fierce advocates of just those policies - that the government should spend massively for the benefit of those who needed support; that it should regulate activities across a wide spectrum of social and economic matters; that the size of the national debt was almost irrelevant if social good was being accomplished.

His problem, therefore, was two-fold: how to reverse the negative opinion expressed by millions of voters while at the same time retaining the loyalty of his supporters.

Not surprisingly, the address was aimed in both directions at one and the same time. While identifying ways in which the government would begin to eliminate the need for excessive spending and would begin to cut back, he also identified other ways in which the government would continue to spend in order to advance education, re-build the infrastructure, create new high-speed rail networks, regulate commerce where necessary, continue moving toward nationalized health insurance, and so forth.

Some observers might find his strategy for reducing deficits to be somewhat unusual. Normal economic analysis would suggest that the means to cut deficits would be a combination of increasing revenues while at the same time reducing expenditures. Obama's first comment suggested otherwise when he noted, "...Thanks to the tax cuts we passed, Americans' paychecks are a little bigger today." He also mentioned more tax cuts to allow business to write off new investments in equipment plus he was going to create a special new tax advantage to families with students in colleges or universities.

At the same time, he had a long list of new areas for expenditures. These included government-sponsored investments in biomedical research, information technology and, "...especially clean energy technology." Of course, the implication was that spending in these areas would result in an increase in economic activity as new products and services were developed.

One area of particular interest when it came to budgeting for additional billions of expenditures was education. The quality of math and science education must be improved. Government financial support for students must be improved. Teacher incentives much be improved and that profession must be made more attractive to newcomers.

There were some more conventional signs that Obama understood the basics of balancing a budget. He did suggest elimination of billions of dollars of tax subsidies handed over to oil companies and he also advocated (once again!) eliminating recent tax breaks approved for 'millionaires'. Tax favors for banks were also slated to be reduced or eliminated.

State of the Union Addresses almost always contain provisions that are repeated ad infinitum - with little to nothing actually being accomplished - and this year's address was no exception. The President once again promised to "...simplify the (tax) system. Get rid of the loopholes. Level the playing field." He also promised to reduce government regulations by declaring, "...To reduce barriers to growth and investments, I've ordered a review of government regulations. When we find rules that put an unnecessary burden on business, we'll eliminate them."

That type of statements appears to us to be similar to those made by President Clinton in 1994 when he assigned that task to then-Vice President Gore. Has anyone seen a reduced roster of government regulations or a simplification of the over-all tax code in recent years? I didn't think so.

The last major domestic point raised by Obama was in relation to debt, stating, "...Now, the final critical step in winning the future is to make sure we aren't buried under a mountain of debt..." This was particularly relevant since the Office of Management and Budget (OMB) had just forecast this year's budgetary deficit would reach $1.5 Trillion - or a total of $7.5 trillion over the five-years Obama dealt with.

His answer was to freeze government spending for the next five years which would save $200 billion during that period and $400 billion in the next decade. However, he did offer this caveat which raises a serious question regarding his dedication to holding spending steady: "But let's make sure that we're not doing it on the backs of the most vulnerable citizens..." In our opinion, those are known as "weasel words" which leave a lot of room for backing away from harsh statements.

One last note which we found most revealing. After declaring that Social Security must be strengthened for future generations, he then set a series of conditions which we believe completely undercut the credibility of such a declaration when he stated that current retirees could not be put at risk; benefits to future generations could not be slashed; and the concept of investing in securities markets - thereby relieving strains on government financing of Social Security benefits - should not be considered.

Our lasting impression from this address was a President trying to be all things to all people. He wanted to look rigidly conservative, but also appear supportive to those who rely on government services. He wanted to appear strong on government debt reduction, but also sustain all present government activities and add more to the list. And he wanted to reduce government regulations but still be free to impose those new ones which might be required to maintain social harmony by declaring, "...but I will not hesitate to create or enforce common-sense safeguards to protect the American people."

The speech may indeed have played well to the hustings, but when subjected to analysis by cooler, less impressionable observers, it left much to be desired.

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