Obama Whistles Past Economic Graveyard in Deluded SOTU Address

01/26/2011 06:34 pm ET | Updated May 25, 2011
  • Ian Fletcher Author, 'Free Trade Doesn't Work: What Should Replace It and Why'

Not that I really expected otherwise, but Obama's State of the Union address was a great disappointment on economic issues.

Although the president made token noises about how serious our economic problems are, he immediately negated these gestures with other statements that made clear he does not understand.

Statements like the following:

We know what it takes to compete for the jobs and industries of our time. We need to out-innovate, out-educate, and out-build the rest of the world.

Unfortunately, as I discussed at some length in my book, the old "education is the solution" mantra just won't cut it:

One commonly suggested solution to America's trade problems is better education. While this would obviously make America more competitive, that it would be enough is unlikely, if by "enough" we mean able to maintain wage levels in the face of foreign competition.

For a start, our rivals are well aware of the value of education, so it can't be a unique source of advantage for us. Furthermore, it is a testable hypothesis whether education on its own can protect wages, and the evidence is to the contrary. For one thing, a college degree is no longer the ticket it once was: workers between 25 and 34 with only a BA actually saw their real earnings drop 11 percent between 2000 and 2008. And, as David Howell of the New School for Social Research has written after looking at this problem on an industry basis, "Higher skills have simply not led to higher wages. In industry after industry, average educational attainment rose while wages fell."

This should be no surprise, as merely shoveling education into workers' heads obviously will not save them, or the industries they work in, if these industries are bleeding market share and revenue due to imports. Neither can people be expected to devote time and money to acquiring more education (or be able to afford it) if there are no jobs for them at the end. Who feels like pursuing advanced training in automotive engineering today? The weak education of American workers is thus a self-reinforcing problem: educated workers not only support, but require, strong industries.

As for "innovation" as the solution? That's another thing that's nice enough, but not a solution per se to our economic decline; some remarks by Rep. Marcy Kaptur (D-OH) make this point well:

Putting money into research is this Holy Grail for people here who are all college educated when the majority of the country is not, and who put themselves on this elevated plane thinking they know. I remember [Clinton Labor Secretary] Robert Reich saying, 'Here's what America has to do, Marcy: see this salt shaker?' 'Yeah?' 'America's going to do the design,' he said. 'It'll be made elsewhere, but we'll do the design.' I thought, 'Wouldn't that be an answer from a professor?' I want both! I want engineering and pro-duction because I know the people in my district who used to make goods but don't anymore, and they have a right to make what they end up buying.

Ralph Gomory, no less than the former chief scientist of IBM, has criticized what he calls "the Innovation Delusion" in this very webzine.