Following the political shot in Massachusetts on January 19 heard 'round the nation, the magazine The Economist analyzed the aftermath of the Senate race there by saying, "After the Democrats' stunning loss, Barack Obama has no choice but to move back to the centre."
This conclusion makes no sense at all, since the most important domestic economic issue - which is creating and retaining high-quality jobs and near full employment of the nation's workers - has no business being triangulated by any magazine writer or pundit or, frankly, administration economist into being left, right or center.
Yet darn it, when it came to the domestic economy sections of last Wednesday's State of the Union Speech, it seems that the "move back to the centre" theme was high on the agenda. As Machinists President Tom Buffenbarger said in reaction to the Speech, "When one-fifth of America's workforce is idled to some degree, the full force of government, business, labor and academia must be marshaled to get them back to work. But no such comprehensive strategy was outlined."
Specifically, what the country needs to see right now are hard results from taking - but this time taking effectively - the sensible, pragmatic steps to help middle class Americans that Candidate Obama proposed during the 2008 Campaign. And the reason I say "but this time taking effectively" is because I believe that the President's administration made six major mistakes over the last year in executing his domestic economic recovery plan, mistakes that probably should have been acknowledged in the Speech and at least still need to be addressed.
Mistake number 1 was compromising right out of the box on the new administration's promised commitment to "new populism."
What this compromise led to was an undersized and misdirected Stimulus Plan that was crippled from day one because a third of it was wasted on tax cuts designed to win the votes of Republicans who all voted against it anyway, and because it over-romanticized small businesses and individual entrepreneurs versus stabilizing and creating world-class manufacturing enterprises that by nature tend to be capital-intensive and produce high-quality jobs. And all the while, short shrift was given to job-intensive investments in airports, freight rail, ports and congestion-relieving highways that contribute so much to economic growth.
Mistake number 2 was immediately thereafter putting health care reform so obviously ahead of CREATING JOBS, even though Candidate Obama had said that jobs and employment would never take a back seat to any other initiative.
We know now that the voters of Massachusetts were much more concerned about the wrong priority that the administration was giving health care reform than they were reacting to the reform plan itself.
In addition to the misplaced priority versus creating jobs, the voters of Massachusetts also took strong exception to the unfair manner in which the Senate was proposing to pay for the changes to our health care system - this was mistake number 3.
Throughout the 2008 Campaign all of the Democratic candidates spoke repeatedly about paying for these reforms mostly by rolling back the Bush tax cuts for the extremely wealthy, modestly raising the capital gains tax rate on the wealthy, and going after tax abuses at home and abroad. It was never contemplated that the burden would fall heavily on the roughly 200 million Americans who already have pretty good (albeit overly expensive) health care coverage.
Yet when the administration gave the Senate Finance Committee, instead of the more appropriate HELP Committee (which includes Health), the primary mandate to develop the Senate's version of the health care plan, the Finance Committee Chairman opted to have much of the reform's cost paid for by the already-insured - and the administration acquiesced. Heaped on top of a jobs-ravaged economy, this approach is nuts and very unfair - and the electorate in Massachusetts and everywhere else clearly see it as such.
Mistake number 4 was the high priority that was at once given to Wall Street's massive bailout.
After the Inauguration, when the damage wrought by Wall Street and its ilk was even more apparent than during the Campaign and when the number of real unemployed workers on Main Street was obviously exploding geometrically, the economic team in the administration nevertheless put resuscitating (and not even reforming) Wall Street well ahead of revitalizing Main Street, when they should have been given at least equal shrift.
And what compounded this particular mistake into another big one was that even the relatively little attention which was paid to creating millions of new jobs was overly influenced by senior economic advisor Larry Summers' long-held beliefs that a "job is a job" and that the decline in our nation's manufactured goods (and, by extension, the labor force that makes them) can be made up by a favorable trade balance in such products as software, legal services, university tuition, and motion pictures.
Both of these premises are dead wrong. In fact,
- Compensation for manufacturing jobs is on average 15% greater than for non-manufacturing jobs.
- Manufacturing has by far the largest multiplier effect of all job sectors, creating1.40 of additional economic activity for each1 of direct spending, 2.5 other jobs on average for each job in the sector, and, at the upper end, 16 associated jobs for each high-tech manufacturing job. By contrast, each new service job, even a high-tech one, creates on average no more than 1.6 associated jobs.
- Service jobs do very little to help the U.S. balance of trade, and there will never be enough exportable services to make for the devastation to manufacturing employment in the U.S. over the last 20 years and continuing.
Instead of contributing just 11.5% of our GDP and employing only 8% of the U.S. labor force, our manufacturing sector needs to be at least twice as large. And when it is, 12 million more workers will be employed directly in the sector and up to another 30 million workers indirectly.
Mistake number 5 was not addressing head-on the trading abuses of our major trading partners, especially China. As was also promised during the Campaign, government must assist American businesses and their workers by demanding trade agreements that have meaningful labor and environmental standards, forbid illegal subsidies and currency manipulation by other nations, and have enforcement "teeth." And we especially need to establish a new trade relationship with China, that includes stopping its unfair trade practices and illegal subsidies, especially its artificial devaluation of its currency, which alone creates a staggering 25% illegal subsidy on Chinese exports.
Yet in the SOTUS, all we heard from the President, as we have heard from his administration for a year, is a largely meaningless pledge to "double our exports over the next five years" and a vague commitment to a "National Export Initiative that will help [only] farmers and small businesses increase their exports, and reform export controls consistent with national security".
What about our big industrial firms like the automobile and aerospace companies?
And when will the President and his administration move away from the discredited one-size-fits-all Doha approach to trade and away from relatively meaningless FTAs with small countries like Panama and Columbia, and instead identify and confront the mercantilist practices that are the biggest threats to American manufacturing, such as China's?
Mistake number 6 was allowing some in the administration to officially declare the recession over when the nation again had positive GDP growth, no matter how meager that growth was and how it was really gained. And so it was that on December 13, after third quarter GDP had grown a measly 2.2% almost entirely because of vast new profits on Wall Street and stimulus-prompted government hiring (including of short-term Census takers), Larry Summers said that, "Everyone agrees that the recession is over".
Well, Mr. Summers, the "economic recovery" we are in is a jobless one that already involves the largest absolute number of unemployed American workers ever, that may see another half million or so jobs lost before we truly bottom out, and in which it will take years to recover the millions of new jobs needed to get back to real full employment.
None of this is lost on the electorates, just as they have known firsthand for years that using GDP growth alone is a weak and misleading indicator of true economic vitality. The only measure that matters to them - and to the nation - is employment.
So when The Economist says that "Barack Obama has no choice but to move back to the centre", it's simply wrong. Because getting back to near-full employment of all 159 million American workers through sound stimulus efforts, thoughtful investments in jobs-rich activities, our own "buy-domestic" federal procurement program, wise tax policies, out-of-school youth employment programs, and fair free trade practices is not at all about right, left or center.
Now it's all about meaningful results, and not about theories and more promises. I only hope that the Obama administration draws the proper lessons from the recent election results in New Jersey, Virginia and Massachusetts, and focuses not on misplaced ideological divides but on achieving those results for middle class Americans.
Leo Hindery, Jr. chairs the US Economy/Smart Globalization Initiative at the New America Foundation. He is the former chief executive of AT&T Broadband and other major media and telecom companies.