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The many failures of Obama's Teddy Roosevelt speech
The president's diagnosis of our economic ailments is spot on. But his prescription is quack medicine
David Frum
David Frum
E

ven on its own terms, President Obama's speech in Kansas on Tuesday, apparently meant to echo Teddy Roosevelt, did not make a lot of sense.

The Kansas speech was composed of two main parts: a critique of the performance of the U.S. economy over the past generation, and a program for "rebalancing" in the years ahead.

The trouble is that the more convincing you find the critique, the less convincing you will find the proposed solution.

Obama's critique attacks the increasing inequality in American society, and blames the 2008 crisis, at least in part, on this inequality:

Long before the recession hit, hard work stopped paying off for too many people. Fewer and fewer of the folks who contributed to the success of our economy actually benefited from that success. Those at the very top grew wealthier from their incomes and their investments — wealthier than ever before. But everybody else struggled with costs that were growing and paychecks that weren't — and too many families found themselves racking up more and more debt just to keep up.

Few politicians offer a more acute assessment of America's problems than President Obama. But when it comes to creating an effective alternative — the country is left waiting.

Now, for many years, credit cards and home equity loans papered over this harsh reality. But in 2008, the house of cards collapsed. We all know the story by now: mortgages sold to people who couldn't afford them, or even sometimes understand them. Banks and investors allowed to keep packaging the risk and selling it off. Huge bets — and huge bonuses — made with other people's money on the line. Regulators who were supposed to warn us about the dangers of all this, but looked the other way or didn't have the authority to look at all

There's a lot missing from that story. But still ... close enough for government work. 

So what exactly does the president propose as a policy response to this generational economic disappointment?

The program he proposes is hazy, but seems to include four main elements:

1) Increased spending on education intended to upgrade American skill levels

2) Higher taxes on upper-income earners to decrease inequality

3) More government investment in infrastructure, both as a source of jobs and in hope of supporting a more middle-class economy

4) Stricter financial regulations

Now how exactly is any of this supposed to address the challenge the president himself described?

If higher education spending could do the job of sustaining a middle-class society, that job would be done. Total education spending in the U.S. doubled between 1992 and 2005. U.S. secondary-school spending per student ranks third in the world. Student proficiency as measured by school-administered tests has risen somewhat. Yet according to the president himself, the pay situation for ordinary Americans was worse after the rise in student proficiency than it was before. Meanwhile, countries that spend significantly less on education than the U.S., such as Austria and Denmark, enjoy higher wages and show a more egalitarian distribution of income. 

Americans invest enormous faith in schools and schooling. But it seems that higher and higher investments in education are not translating into higher wages or greater opportunities. Maybe Americans are spending on the wrong things. Maybe more spending is not delivering higher achievement. Whatever the reason, the president's first policy recommendation has already been tried, on a huge scale, and has already disappointed.

What, then, about his other ideas?

Those too have been tried — and the results should give us pause.

It's helpful to think of ideas number two and three as forming a package: Higher taxes on upper-income earners buys more public services — and thus, more (comparatively) well-paid public-service workers.

This was the approach followed by the Tony Blair and Gordon Brown New Labour governments in the United Kingdom between 1997 and the economic crisis of 2008.

Over those years, the U.K. experienced growth even more lopsided than anything seen in the U.S. Financial services boomed. Southeastern England boomed. Other sectors of the economy and other regions of the country stagnated and declined. Blair and Brown responded by raising taxes on the high incomes of rich England, and using the money to expand government payrolls in poor England.

Between 1997 and 2008, an outright majority of all net new jobs created in the formerly industrial regions of the UK — northern England, Scotland, and Wales — were created in the public sector. More than 80 percent of all net new jobs for women across the country were created in the public sector.

Public-sector jobs paid better and delivered better benefits than private-sector jobs. (How much better is a controversial question, but the figure most often heard for the public-sector premium is 7.5 percent for comparably credentialed workers.)

Such is the future indicated by points two and three of President Obama's plan.

Look, back in 2007, this plan seemed to have a lot to recommend it. Let the nation's most globally competitive workers earn what they can in world markets, tax them, use the proceeds to generate secure if less productive jobs for the less-competitive — why not?

Well, because it turns out, the whole economic scheme depends entirely on the continuing success of one lucrative sector of the economy: finance. In the U.K., when finance ran into trouble, government tax revenues collapsed — and suddenly all those middle-class public sector jobs were imperiled. The attempt to "rebalance" only exaggerated the problem of imbalance. And now the U.K. faces an even more troubled economic future than the U.S., as a highly indebted government struggles to choose between saving its own finances (at the expense of all those workers it hired in the good years) or protecting its workers (at the cost of higher debt and higher taxes).

Yet here is President Obama proposing to replay that bitter Blair-Brown experience. The unblinking diagnosis of the ills of the U.S. economy in the first half of his Kansas speech builds to a conclusion that amounts to: Let's accept that our future prosperity will be very narrowly based, and instead use some of the proceeds of that narrow prosperity to create government jobs as consolation prizes for those who lose out in private markets. The president flew all the way to Kansas to propose that?

Henry Kissinger once delivered a withering assessment of the foreign policy of the Clinton administration: "The explanations were always better than the policies."

The same might be said of the economic policies of the Obama administration. Few politicians offer a more acute assessment of America's problems than President Obama. But when it comes to creating an effective alternative — the country is left waiting.

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