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Paul Solman on the Economics of the Union

What a relief: a SOTU address without the traditional partisan whack-a-mole standing ovations. “Date night’s” civility – or, if you prefer, lack of passion – Making Sensehad the virtue of keeping Democrats and Republicans mostly in their seats. (Sitting cheek by jowl after years of mutual denunciation, with all the world watching, tends of chasten most homo sapiens.)

If date night restraint accounts for the SOTU’s eight fewer minutes this year than last (it easily might), and the estimated 45 million viewers actually watched for an hour, the securely seated Congress of 2011 single-handedly saved six million American person-hours that would otherwise have been spent watching speechless standing Os. That works out to 150,000 work weeks worth of extra time; some 3,000 person-years. Granted, not many of them would have been used to do more work instead of watch more television. But my extra eight minutes were so deployed.

“No workers are more productive than ours,” the president boasted at one point. He might have added that an uncharacteristically sedentary Congress was doing its bit last night.

As for the content of the mostly uninterrupted one hour and nine minutes of actual talk, the president focused on a problem that has been growing for decades: how the world has changed. China, he said, now boasts the world’s fastest computer, the world’s largest solar research center. By contrast, the U.S. is ninth in college graduation rates.

But we’ve got an economy three times the size of China, he said, a timely reminder in a week where 47 percent of Americans were reported to believe that theirs is bigger than ours. It was also a week in which the savvy Arvind Subramanian of the Peterson Institute for International Economics pointed out that, measured by how many haircuts or doctor visits you can buy in China compared to the U.S. — “If you make that purchasing-power correction,” as Subramanian put it — “I find that the Chinese economy is $14.8 trillion, which is larger than the American economy.

Yet all is not lost.

“We are the first nation to be founded for the sake of an idea- the idea that each of us deserves the chance to shape our own destiny,” declaimed the president. We’ll grow; we’ll prosper. We’ll do so by being the best, the brightest, the most innovative

“None of us can predict with certainty what the next big industry will be, or where the new jobs will come from,” Mr. Obama pointed out, echoing research by his economic adviser Alan Krueger, who has just returned to Princeton. “Thirty years ago, we couldn’t know that something called the Internet would lead to an economic revolution.”

So innovation is key.

“In America, innovation doesn’t just change our lives,” said President Obama. “It’s how we make a living.

“Our free enterprise system is what drives innovation. But…” – and this is the crucial “but” of a Democratic president – “because it’s not always profitable for companies to invest in basic research, throughout history our GOVERNMENT [emphasis added] has provided cutting-edge scientists and inventors with the support that they need. That’s what planted the seeds for the Internet. That’s what helped make possible things like computer chips and GPS.”

President Obama delivers his State of the Union address. Photo by Getty Images.

I.e.: much-maligned government has a role to play in the economy, my fellow Americans, and let’s not forget it. The most memorable line from this part of the president’s argument: “This is our generation’s Sputnik moment.” Given that Russia’s Sputnik was launched more than half a century ago, and that the economic payoff from the space race is still hard to demonstrate, it was a line perhaps better left unuttered.

What most commentators have noted is that in addition to the rather modest litany of investments — in biotech, clean energy, infrastructure, education — there was the expected tilt toward fiscal responsibility, if not austerity:

-Eliminate tax breaks for oil companies

-Simplify the tax code

-No permanent tax cuts for the wealthy

-Medical malpractice reform

-Military cuts

-No earmarks

-Freeze and streamline government. It was here that the president got his one big laugh, bemoaning bloated bureaucracy:

“My favorite example: the Interior Department is in charge of salmon while they’re in fresh water, but the Commerce Department handles them in when they’re in saltwater. And I hear it gets even more complicated once they’re smoked.”

The president even drew attention to the radical ideas of his fiscal commission though, unsurprisingly, he didn’t specify which.

And to the GOP response…

The new Chair of the powerful House Budget Committee, Republican Representative Paul Ryan, followed, emphasizing one theme: the crippling costs of Big Government. He decried our annual deficits, our deepening debt. But I couldn’t help remembering what I’d been told about when attending the annual economists convention a few weeks ago. In the lobby, I’d run into Alan Krueger (see above), and was interviewing him for a web-only story that ran last week.

“Take the President’s fiscal commission,” said Krueger, expressing skepticism that either Democrats or Republicans will make real inroads on the national debt. “It just came up with very difficult choices and they didn’t have enough support to bring it to a vote in Congress. I think that there are a lot of people who talk about the deficit but when the rubber hits the road, they push the problem off until tomorrow.”

“Well,” I responded, “the Commission didn’t have enough support in part because there were Democrats on the commission, but the thinking is that finally the Republicans will now force the issue.” Krueger’s response?

“The most important vote against the recommendations of the fiscal commission was by Congressman Paul Ryan, Republican Chairman of the Budget Committee.”

That’s true, of course. But to be fair to Rep. Ryan, notes an esteemed and knowledgeable colleague here at the NewsHour, while the chairman was less specific last night, he has already gone much farther recently than many of his Republican colleagues in spelling out specific cuts to programs that he believes would help trim the deficit significantly.

Still, the question for Ryan and the Republican leadership is whether they will really press forward with those cuts. Flipping channels last night, I noted that virtually every commentator, including those on Fox, pointed out that most of the Federal budget is apparently untouchable, even to most Republicans: defense (20 percent), Social Security (20 percent), Medicare/Medicaid (20 percent), Federal and verterans’ retirement benefits (7 percent) and interest on our national debt (6 percent). Thus the size of promised cuts in “everything else” would convulse the country: education (3 percent), science and medicine (2 percent), food stamps (1/2 percent) and yes, even public broadcasting (something like .00003 percent, though someone might want to check my math).

Representative Ryan invoked the “austerity” of Europe’s debtor nations:

“They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody. Their day of reckoning has arrived. Ours is around the corner. That is why we must act now.” We know something about this, as a story of ours on Euro-debts ran Monday night.

But the same question must be posed to Representative Ryan as to the president, and for that matter to the Tea Party’s Michelle Bachmann, who spoke last — on CNN and online — How do we cut our spending WITHOUT at least some degree of austerity? Or are today’s Americans, despite our talk of bi-partisan restoration and competitiveness, much like yesterday’s? We want everything that money can buy; we just don’t much like paying for it.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._

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