In the rich oratory of an inaugural address, President Obama sketched out a vision Monday for addressing the problems that have been afflicting the American economy — not just since the financial crisis and recession but for long before.
Obama said the government must play a bigger role in ensuring that the middle class benefits from the nation’s economic growth, after many years when middle-class wages stagnated. He argued that the country needs better railroads and highways to make it more attractive to businesses and better schools and colleges to train students for the jobs of the future — which often demand math and science skills. And amid calls to impose discipline on the federal budget, he defended the value of a costly social safety net, describing it as a critical support for Americans willing to “to take the risks that make this country great.”
The words were geared toward a different economy than the one he inherited four years ago. Then, he faced a crisis that threatened to cause another Great Depression and a colossal breakdown in Americans’ quality of life. His first-term economic achievements were largely in response to that challenge.
In his second term, Obama is looking to tackle problems that were festering long before the financial crisis that immediately preceded his first term. The country faces a fast-growing national debt as a result of waves of retiring workers who expect health care and pension benefits. Businesses see crumbling infrastructure and a workforce whose education and skills have begun to trail that of many countries’ workers. Globalization and advances in technology threaten to further push down wages for middle-class Americans and exacerbate inequality.
Obama addressed these challenges in his speech. “We understand that outworn programs are inadequate to the needs of our time,” he said. “So we must harness new ideas and technology to remake our government, revamp our tax code, reform our schools, and empower our citizens with the skills they need to work harder, learn more, reach higher.”
In more concrete terms, the second-term economic agenda is expected to include efforts to boost government spending on roads, bridges and other infrastructure and further support for developing sources of clean energy. Obama is expected to continue to pursue policies that focus on education and developing the workforce’s skills — with a particular focus on manufacturing. And he will oversee the implementation of the Affordable Care Act, his expansion of health care that will shape the future of the economy for years to come.
According to aides, Obama will continue to try to accelerate economic growth to bring down unemployment — one of the two basic objectives of Obama’s second-term economic agenda. The other is to make sure that the economy’s growth benefits more middle-class Americans.
“The key challenge is how to ensure that there are good middle-class jobs with rising wages for the broader working population,” said Brian Deese, a top Obama economic aide. “There are a number of long-term pressures on that — and challenges to that — from technological trends, demographic trends.
“I think that if you look at the drivers of productivity over the long term and you look at the things that will position our economy but also our workforce to compete for the jobs of the future, they dovetail with the priorities the president has set,” Deese said.
Jared Bernstein, a senior fellow at the Center for Budget and Policy Priorities and a former administration adviser, said Obama’s plans, if fully realized, would strengthen the middle class. But it would take time.
“It would be incremental,” he said. “You’re not going to reverse decades of bad market outcomes for most of the population in a few years.”
Lawrence Summers, a Harvard professor and another former Obama adviser, said the nation’s economic success could come sooner than many anticipate.
“There’s a real prospect that as the economy recovers, that given what the United States has been able to do with information technology, given the resources that are becoming available in the energy sector, given that we’ve started to see greater results in terms of education, then I think people may be surprised by the progress that we see,” he said.
In his remarks, Obama did not explicitly mention the nation’s unemployment rate — currently at 7.8 percent. Many economists say reducing that must remain the top goal.
“There needs to be more done in the short run to make progress on the unemployment rate,” said Lawrence Katz, a Harvard economist. “His whole agenda would be much more likely to have medium-term impact if we got short-run benefits to the economy. Those are the things that don’t seem to be going anywhere with Congress.”
Obama has long pushed for additional spending on roads, bridges, railways and other construction projects as an elixir for multiple economic problems. He is expected to continue to push for such spending in coming months, with the president viewing it as a way both to find jobs for out-of-work Americans and to make the country more competitive.
“It has the right combination of supporting short-term demand but also helping with long-term challenges of increasing productivity and competitiveness,” Deese said.
It is a tall order, however. Obama was able to secure tens of billions of dollars in infrastructure spending in his 2009 stimulus bill, but Congress never took up his later proposals to direct more taxpayer dollars toward this aim. Republicans rejected the idea in the recent negotiations over avoiding the tax hikes and spending cuts known as the “fiscal cliff.”
Beyond taking short-term steps to boost economic growth, Obama plans to continue to pursue deficit reduction talks with Republicans. Negotiations in 2011 and 2012 produced a package of spending cuts and tax hikes that will begin to stabilize federal borrowing.
Obama is advocating a rewriting of the nation’s tax code to raise more revenue by limiting deductions for the wealthy and closing corporate loopholes, and he also says he wants modest changes to entitlement programs such as Medicare and Social Security to save money. While Republicans also want to see the tax code reformed, they say they are finished raising new tax revenue and instead want deep cuts to entitlement spending.
Congress must act in coming weeks to avoid deep automatic cuts in spending set to take place in early March. Later in the spring, Congress must raise the limit on federal borrowing or risk a government default.