SOTU: Obama defines the challenge, but misses the solution
His formulation of the fundamental problem facing the majority of American workers was accurate, but incomplete. The economy is changing rapidly due to technological innovation, and this period of unrest, like the Industrial Revolution before it, has increased returns to capital and boosted the earnings of those at the top, all while jobs have disappeared and wages have stagnated for many others. But unfortunately, his two-sentence explanation of our economic woes leaves a lot out of the picture, and when the entirety of the situation is taken into account, his solutions are inadequate.
To start out, it’s worth noting the ideas that were promising. Obama’s pledge to raise the Earned Income Tax Credit (EITC) is long overdue, and actually has bipartisan support, given Sen. Rubio’s recent calls to turn the tax credit into a monthly wage subsidy and offer more generous assistance to those the program doesn’t serve well, such as noncustodial parents. EITC consistently keeps millions out of poverty, and a better-structured program would be a boon to those struggling in the wake of the recession.
It’s also a much better path for poverty alleviation than his later calls for an increased minimum wage, which goes to few individuals actually living in poverty while making those desperately trying to break into the labor force more expensive. In a struggling economy, it’s problematic to argue that companies need to create more jobs, and at the same time, pay more for each of those workers, while taking bets on those whose skills might be rusty after months out of the labor force. A federal wage subsidy would solve the problem while keeping the burden off of employers, encouraging them to hire more and take risks on those who deserve a chance.
Additionally, the president’s focus on savings accounts for individuals currently unable to accumulate assets could be promising. The details of any such initiative are important and difficult to work out, but the idea has promise.
The same is true for job-training programs, where despite the best efforts of many smart thinkers, formulating and sustaining successful programs has been challenging. The difficulty is twofold. First, individuals don’t just need access to a good job; they need access to a good job that has upward potential and the skills to go with that. Second, as The Atlantic‘s Derek Thompson pointed out this week, of the ten fastest growing occupations, seven are likely to be mechanized in the next ten years. Training individuals with skills for today may leave them in the dust tomorrow, either sending them back to the drawing board for additional training or discouraging them from participating in the labor force altogether.
Unfortunately, these efforts and the other oft-cited proposals like tax reform and trade agreements could, at their best, only address half the problem facing our nation. Government policy can produce the conditions necessary for job creation and help keep people afloat in bad times, but it is much harder to tackle the other half of the mobility equation, namely, social and cultural conditions. The effects of community and family break down have been just as detrimental for those living in or near poverty, and it will be impossible to lift struggling families without addressing these issues.
And here, the president’s speech left us with a lot of questions. Rather than dig in deep on a limited handful of ideas, the president gave us a laundry list of items, some of which, if structured correctly, could help. However, with any new initiative, the devil is always in the details.
For example, Obama gave only a passing one-sentence reference to working with state and local officials to reduce marriage inequality. Ample evidence exists that the marriage gap and single motherhood are leading causes of poverty and low inter-generational mobility. But from last night’s speech, it’s impossible to know how Obama thinks about this problem’s myriad causes and potential solutions.
The president spent more time addressing infrastructure spending as a way to create jobs, but hopefully, the spending will be used as more than just a jobs initiative. Strategically strengthening the connections between disaffected communities and locations with more opportunity will help break down the barriers that exist for those who have traditionally been locked out of the workforce.
Studies suggest that lack of access to reliable transportation harms an individual’s ability to make meaningful connections with others who can help them find work, and that individuals living in neighborhoods highly segregated by income have incredibly low income mobility compared to those in more mixed communities. Using transportation funding to help individuals trapped in these neighborhoods should be a main focus of any initiative to restore income mobility.
Finally, the president briefly mentioned restructuring unemployment insurance to get people back on their feet after the recession. This is disappointing, as many ideas are floating around and are ready to be picked up. Additionally, he devoted time to discussing early childhood education, an area where government success is lacking so far. He failed to inject anything new into the discussion, leaving us to assume the plan is simply more of the same, failed strategies, just for a larger captive audience.
Other good ideas were missing from the speech entirely — ending the war on drugs and prison reform, just to name two. The speech summed to a standard list of wants (tax reform, green energy, access to college) while injecting a few new initiatives with scant details. The new era of technological innovation Obama referenced has indeed arrived. Unfortunately for those struggling with its ramifications, the president seems to have few new ideas on how to ease the transition.