Does President Obama Understand Why Government Exists?

Robert Reich, writing yesterday (“The President Ignored the Elephant in the Room“) in his blog, says that government exists “to protect and advance the interests of average working families.”

Reich explains how the destruction of the purchasing power of average working families is the root problem of our current economic malaise.

The recession wasn’t due to loss of “competitiveness” …  American corporations are enormously competitive, racking up some of their highest profits in history …

The president’s failure to address this decoupling of corporate profits from jobs … risks making his plans for reviving “competitiveness” seem beside the point …

What he should have done is talk about the central structural flaw in the US economy, the dwindling share of its gains going to the vast middle class, and the almost unprecedented concentration of income and wealth at the top.  Although the economy is more than twice as large as 30 years ago, the median wage has barely budged. Most of the gains from growth have gone to the richest whose share of total income soared from about 9 per cent in the late 1970s to 23.5 per cent in 2007.  Americans kept spending by using their homes as ATMs but the bursting of the housing bubble put an end to that – leaving them without enough purchasing power to reboot the economy. So the challenge is to rev-up consumer spending by putting more money into the pockets of average Americans …

While Obama’s cronies — drawn mostly from the financial industry — urge him to continue seeking “supply side” remedies (bank bailouts, reduction of corporate taxes, easing of government regulations), no one is much focused on how to restore demand, which means creating jobs now, not decades from now.

Jack Rasmus (author of Epic Recession: Prelude to Global Depression), writing in In These Times (“Obama’s State of the Union: No Jobs, but More Business Tax Cuts“) makes precisely the same point:

The problem in the U.S. economy, now experiencing the most lopsided (and weakest) economic ‘recovery’ from any recession since 1947, is not too high business costs or insufficient supply side (business tax) stimulus. The problem is demand side—i.e. not enough income for the 90 million middle and working class households. That insufficient income means first and foremost not enough jobs. On Tuesday night, Obama said nothing of substance about how to create jobs today or even in the next one to two years. Job creation was relegated to the distant future, stretched out over the next 25 years.

The U.S. economy and households do not need a 25-year job creation plan. They need an immediate job creation program. And they need a definitive solution to prevent 10 million foreclosures. And they better get quickly a rescue of the states and cities, before the local government crisis sinks the municipal bond markets and subsequently precipitates another ‘subprime’-like financial implosion. Yet no mention of any of this in the State of the Union address, as if these weren’t the most serious issues confronting the US economy today.

President Obama got much deserved praise for the good things he said in his State of the Union address, but little criticism for what he completely failed to discuss. Reich points out that “the address he gave last night could have been given (indeed, was given) by Democrats in the 1980s when Japan seemed to threaten America’s preeminence.”

What Obama failed to address was the single most crucial structural weakness in our economic system, indeed in our political system, the continuing erosion of our middle class.

This point got swamped by the feel-good rhetoric of a very conventional feel-good State of the Union address.

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