Jeremy Cutcher is a political science senior and Mustang Daily liberal columnist.
Last week, President Obama gave his annual State of the Union address, outlining the path his administration would take over the next two years. As many pundits and journalists predicted, the policy proposals he outlined are more centrist. Yet, many Conservatives still disparage his ideas as the usual liberal business of taxing and spending.
Obama began his speech picking up on the same line he left off of in his last speech in Tucson, calling on Americans to make this country the democracy we believed it could be in our idyllic innocence of childhood. He then went on to outline the vision he has for America in his next two years as president.
President Obama discussed a number of issues that should garner bipartisan support, so long as political maneuvering does not become involved. First, he talked about closing tax loopholes and using the increased revenue to lower corporate tax rates to remain competitive in the global economy. Second, Obama said the U.S. needs to invest in infrastructure to catch up to Europe and Asia, which makes sense seeing as how much of our infrastructure is well over half a century old. He also talked about ending oil subsidies and using this revenue to invest in clean energy so that, in his words, “Instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.”
Following the theme of investing in tomorrow, Obama said he wanted to end the pitiful, underfunded program Bush called No Child Left Behind and replace it with “a law that is more flexible and focused on what’s best for our kids.” He highlighted his administration’s Race to the Top program, which put more of the power of educational matters at the state level, giving governor’s the responsibility of designing their own programs for their respective states.
Education is one of the best investments the federal government can make. All we need to do is look at our own tuition fees and see that education is becoming so expensive it is out of reach for students. Devoting more money to education can help keep costs down. Furthermore, if we use wages as a proxy for value to society, teachers do not rank very high given their measly salaries. Yet, teaching is by far one of the most important professions in the country, educating the future leaders of tomorrow. It is telling about our education system when Obama is criticized for being an “intellectual.” I think we need to devote more resources to education so that this culture of hating the intellectual may pass.
Still, Conservatives will not accept these “spending increases.” In fact, the day after the speech, many conservative columnists decried Obama’s call for increasing investments as a cover for increased spending. But this adds nothing to the discussion. Of course investing is spending because investing means spending now to gain some type of benefits in the future. And that is precisely what spending on infrastructure and education will do — we will be “investing in tomorrow.”
Already you can see the parties positioning themselves for the 2012 election. But before Republicans take credit for making Obama move more towards the center, they must not forget that Obama came into office with a huge democratic majority in both houses of Congress. The politically expedient plan for Obama and the Democrats was to pass legislation that would not pass under other circumstances such as financial regulation and, most notably, health care reform, which administrations had been attempting to pass since the Great Depression.
And before Republicans take credit for Obama being more fiscally responsible, they must not forget that Obama came into office in the midst of the worst recession since the Great Depression. Conservatives love to mention the increase in federal spending under Obama, but constantly fail to mention the context. Macroeconomic theory states that in recessions, aggregate consumer demand falls, which triggers businesses to cut back production (including layoffs) as their revenue falls.
Thus, according to Keynesian theory, the government, which is the only institution that has the mass resources, must spend to compensate for the lost consumer demand and help ameliorate the depths and effects of the recession. This is precisely what the Obama administration did, not to mention that the Stimulus Bill, in terms of the number of Americans affected, was the largest tax cut in history, with $282 billion of the $787 billion going to tax cuts, though Conservatives always discuss it solely as a huge spending bill.
It will be interesting to chart the course of Obama’s presidency over the next two years. Surely, it will focus more on fiscal issues than social issues. No doubt there is a lot of spending outlined in his State of the Union address. It will be interesting to see if the country accepts his plan of investing in a new America. It will also be interesting to see how they agree to pay for it (it seems like some sort of tax increases will be necessary). The public no longer allows that benefits are received now but bills are paid later.
Obama called this our “Sputnik moment” — this is the moment where we decide whether we are to be the country we are or the country we want to be.
Jeremy,
The “macroeconomic theory” that you stated is simply wrong. The recession is not caused by a drop in aggregate demand. Rather, it was the necessary side effect to malinvestments that took place because of artificially low interest rates created by the Federal Reserve via injections into the commercial banks. When the banks’ reserves are increased through this injection of credit, the interest rate drops, causing entrepreneurs to ‘invest in tomorrow.’ However, because consumers had not cut back on their consumption (i.e. demand), they had not freed up resources to fulfill the demands for ‘tomorrow’s goods.’ Therefore, when ‘tomorrow’s goods’ finally arrive on the market, the consumers do not have real savings to buy these new goods. When the entrepreneurs find out that the consumers do not have the real savings, they are forced to stop dead in their tracks and liquidate all of their investments. In this sense you could say that the cause of this crash was due to the lack of demand of consumers, but to believe that the recession exists, ex nihilo, due to a drop in aggregate demand is a non sequitur. Secondly, when you say the government is the only institution that has the mass resources to spend during the recession in order to ease the pains of the recession, it is important to ask these questions, who’s resources are they spending? Should they be spending at all during a recession? When a business owner starts recording losses in his accounting, does he/she even begin to think about spending more? The answer to this last question is most assuredly, no! If they started spending more they would become what they call on the market, bankrupt. This is exactly the state of the current United States government, but the difference is that the government can’t go bankrupt- it can only keep spending until it finally spends itself out of existence. It would be hardly true to say that all of these thoughts were a product of my own thinking. Much of the support for my arguments are based on the Austrian School of Economics, however my comments do not in any way speak for it.
Ending your statement by saying that your thoughts are “based on the Austrian School of Economics” doesn’t make you sound any smarter or make your argument anymore valid. I know you feel like you’re citing your credibility by putting that in there but it would be like the sex columnist saying she knows her stuff because she read Twilight. Yeah, it’s in there, but it doesn’t nessecarily mean it’s right.
Wildcat,
I did not intend to cite the Austrian School to make my argument more justified. I cited it at the end of my argument to point out that my analysis was not completely original. I fully agree with you in that it does not add or subtract credibility to my claims. However, I do believe the arguments that I made in my response followed a logical order. Therefore, the credibility of my argument should have been derived from this fact alone. Simply because it is based on the Austrian analysis does not make it more or less correct. Moreover, the point I was trying to make about Jeremy’s article was that his arguments did not hold to a logical sequence of events. Lastly, I just want to point out that there is no reason to believe I did mention the Austrian School to gain credibility. Just because you reference a source of your ideas does not attempt to make your arguments more correct. This is precisely why I did not attack Jeremy’s argument by simply stating that his arguments were wrong because he subscribed to the Keynesian analysis. What I did attack however, was his explanation.
Jeremy,
The "macroeconomic theory" that you stated is simply wrong. The recession is not caused by a drop in aggregate demand. Rather, it was the necessary side effect to malinvestments that took place because of artificially low interest rates created by the Federal Reserve via injections into the commercial banks. When the banks’ reserves are increased through this injection of credit, the interest rate drops, causing entrepreneurs to ‘invest in tomorrow.’ However, because consumers had not cut back on their consumption (i.e. demand), they had not freed up resources to fulfill the demands for ‘tomorrow’s goods.’ Therefore, when ‘tomorrow’s goods’ finally arrive on the market, the consumers do not have real savings to buy these new goods. When the entrepreneurs find out that the consumers do not have the real savings, they are forced to stop dead in their tracks and liquidate all of their investments. In this sense you could say that the cause of this crash was due to the lack of demand of consumers, but to believe that the recession exists, ex nihilo, due to a drop in aggregate demand is a non sequitur. Secondly, when you say the government is the only institution that has the mass resources to spend during the recession in order to ease the pains of the recession, it is important to ask these questions, who’s resources are they spending? Should they be spending at all during a recession? When a business owner starts recording losses in his accounting, does he/she even begin to think about spending more? The answer to this last question is most assuredly, no! If they started spending more they would become what they call on the market, bankrupt. This is exactly the state of the current United States government, but the difference is that the government can’t go bankrupt- it can only keep spending until it finally spends itself out of existence. It would be hardly true to say that all of these thoughts were a product of my own thinking. Much of the support for my arguments are based on the Austrian School of Economics, however my comments do not in any way speak for it.