The State of the Union, Dissected for Business

Yesterday’s State of the Union was a nicely written piece, full of buzzwords and encouragement. To get a better sense of what Obama was really saying about business and the economy, I sifted through the political-marketing smokescreen to try to find something more substantial. My dissection is below, with relevant SOTU excerpts and links to other media findings and commentary.

THE STATE OF THE ECONOMY

Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again.

That depends on how you define growth. Some indicators, like manufacturing, are up, but that’s far from a final prognosis.

Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger today. Every business can write off the full cost of new investments that they make this year. And these steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last year.

What kinds of jobs were these? Part-time, temp, seasonal? Jobs created in the private sector, but offshored? This paragraph doesn’t make that much sense when you read it closely, but notice the number of political buzzwords:

…tax cuts…paychecks…bigger…write off…new investments…Democrats and Republicans…grow the economy…one million…jobs.

It sounds good when you don’t really listen.

EMPLOYMENT

In a single generation, revolutions in technology have transformed the way we live, work and do business. Steel mills that once needed 1,000 workers can now do the same work with 100. Today, just about any company can set up shop, hire workers, and sell their products wherever there’s an Internet connection.

Ahem, what about hiring workers abroad? Offshoring the country’s manufacturing base? Major ommission.

Meanwhile, nations like China and India realized that with some changes of their own, they could compete in this new world. And so they started educating their children earlier and longer, with greater emphasis on math and science. They’re investing in research and new technologies. Just recently, China became the home to the world’s largest private solar research facility, and the world’s fastest computer.

And US companies used them for cheap labor.

HOW TO FIX THE ECONOMY

1) Innovation

The first step in winning the future is encouraging American innovation….Two years ago, I said that we needed to reach a level of research and development we haven’t seen since the height of the Space Race. And in a few weeks, I will be sending a budget to Congress that helps us meet that goal. We’ll invest in biomedical research, information technology, and especially clean energy technology — an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.

Government investment is one piece of the puzzle towards creating an innovative culture. How will government encourage the private sector to invest, too? How will it ensure that the money earmarked towards innovation doesn’t get absorbed in special interests or allocated mainly to Fortune 500 companies?

2) Clean energy

…we’ve begun to reinvent our energy policy. We’re not just handing out money. We’re issuing a challenge. We’re telling America’s scientists and engineers that if they assemble teams of the best minds in their fields, and focus on the hardest problems in clean energy, we’ll fund the Apollo projects of our time.

…to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies…instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.

I challenge you to join me in setting a new goal: By 2035, 80 percent of America’s electricity will come from clean energy sources.

The Oil Drum’s JoulesBurn takes a closer look at the Catch-22 about clean energy jobs: …the continuing mantra of job creation ├╝ber alles has obscured simple arithmetic, which is that the total labor costs for a particular product (including indirect labor needed for capital equipment and other inputs) must be reflected in the price paid by the consumer.

3) Education

…instead of just pouring money into a system that’s not working, we launched a competition called Race to the Top. To all 50 states, we said, “If you show us the most innovative plans to improve teacher quality and student achievement, we’ll show you the money.”

Race to the Top is the most meaningful reform of our public schools in a generation. For less than 1 percent of what we spend on education each year, it has led over 40 states to raise their standards for teaching and learning. And Race to the Top should be the approach we follow this year as we replace No Child Left Behind with a law that’s more flexible and focused on what’s best for our kids.

…we’ve ended the unwarranted taxpayer subsidies that went to banks, and used the savings to make college affordable for millions of students. And this year, I ask Congress to go further, and make permanent our tuition tax credit — worth $10,000 for four years of college. It’s the right thing to do…we’re also revitalizing America’s community colleges.

Valerie Strauss takes the education portion apart here.

INFRASTRUCTURE

…we’ll put more Americans to work repairing crumbling roads and bridges. We’ll make sure this is fully paid for, attract private investment, and pick projects based [on] what’s best for the economy, not politicians.

Well, the country does need to function. Obama has been touting the Great Infrastructural Rebuild for years. Let’s hope we get it all upgraded soon.

Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail.

A glance at the GE homepage invites readers to “watch the rebirth of rails,” of all things. (WSJ). Lobbying, anyone?

Within the next five years, we’ll make it possible for businesses to deploy the next generation of high-speed wireless coverage to 98 percent of all Americans.

Again, sounds positive, and with a salting of special interests. I bet the government equates the concessions made by Comcast for the NBCU merger into its high-speed coverage plan.

TAX REFORM

So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years — without adding to our deficit.

As stated in last year’s tax reform.

TRADE

To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 — because the more we export, the more jobs we create here at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs here in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs….that’s what I intend to do as we pursue agreements with Panama and Colombia and continue our Asia Pacific and global trade talks.

Trading with Panama, South Korea and Colombia probably won’t save us, but increasing exports is one possible way to increase jobs. Note that Obama’s export goals were more aggressive in last year’s SOTU. Maybe someone realized how bad things really are.

Oh, and Colombia feels left out. (Colombia Reports)

HEALTH CARE

…instead of re-fighting the battles of the last two years, let’s fix what needs fixing and let’s move forward.

If that means recapturing even more money from health care fraud (count to date: $4 billion), then yes please.

GOVERNMENT SPENDING

…starting this year, we freeze annual domestic spending for the next five years. Now, this would reduce the deficit by more than $400 billion over the next decade, and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was President.

This freeze will require painful cuts. Already, we’ve frozen the salaries of hardworking federal employees for the next two years. I’ve proposed cuts to things I care deeply about, like community action programs. The Secretary of Defense has also agreed to cut tens of billions of dollars in spending that he and his generals believe our military can do without.

…most of the cuts and savings I’ve proposed only address annual domestic spending, which represents a little more than 12 percent of our budget. To make further progress, we have to stop pretending that cutting this kind of spending alone will be enough.

This means further reducing health care costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit. The health insurance law we passed last year will slow these rising costs, which is part of the reason that nonpartisan economists have said that repealing the health care law would add a quarter of a trillion dollars to our deficit. Still, I’m willing to look at other ideas to bring down costs, including one that Republicans suggested last year — medical malpractice reform to rein in frivolous lawsuits.

“The idea that Obama’s health care law saves money for the government is based on some arguable assumptions,” writes the AP–more here.

International compatriots at Davos don’t think Obama gave enough details on cutting the deficit, and that he’s not addressing it aggressively enough. (BusinessWeek)

To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations.

The AP remarks:

With that comment, Obama missed another chance to embrace the tough medicine proposed by the commission for bringing down the deficit. For example, he ruled out slashing benefits or partially privatizing the program, and made no reference to raising the retirement age. That left listeners to guess how he plans to do anything to salvage the popular retirement program whose trust funds are expected to run out of money in 2037 without changes.

More from Obama:

And if we truly care about our deficit, we simply can’t afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans. Before we take money away from our schools or scholarships away from our students, we should ask millionaires to give up their tax break.

GOVERNMENT EFFICIENCY

We live and do business in the Information Age, but the last major reorganization of the government happened in the age of black-and-white TV. There are 12 different agencies that deal with exports. There are at least five different agencies that deal with housing policy. Then there’s my favorite example: The Interior Department is in charge of salmon while they’re in fresh water, but the Commerce Department handles them when they’re in saltwater. I hear it gets even more complicated once they’re smoked.

Now, we’ve made great strides over the last two years in using technology and getting rid of waste. Veterans can now download their electronic medical records with a click of the mouse. We’re selling acres of federal office space that hasn’t been used in years, and we’ll cut through red tape to get rid of more. But we need to think bigger. In the coming months, my administration will develop a proposal to merge, consolidate, and reorganize the federal government in a way that best serves the goal of a more competitive America.

Because you deserve to know exactly how and where your tax dollars are being spent, you’ll be able to go to a website and get that information for the very first time in history. Because you deserve to know when your elected officials are meeting with lobbyists, I ask Congress to do what the White House has already done — put that information online.

Making the government less sluggish and redundant could be the best idea yet.

And because the American people deserve to know that special interests aren’t larding up legislation with pet projects, both parties in Congress should know this: If a bill comes to my desk with earmarks inside, I will veto it. I will veto it.

Obama doesn’t receive any earmarked bills at his desk in the first place, according to the AP.