State of the Union: Austerity and innovation

Addressing a Congress remade by Democratic losses in the November election, President Obama on Tuesday offered a credible prescription for economic growth and a reduction in federal spending.

For much of his State of the Union speech, Obama preached austerity. He called for a five-year freeze in domestic spending, but acknowledged that significant deficit reduction would require even more painful measures, such as reining in the costs of Medicare and Medicaid. It wasn’t clear that austerity would extend to Social Security benefits. He implied that he might oppose not only cuts for current recipients but changes in benefits for future ones. The president’s approach to controlling the growth of entitlement spending is still too vague and timid, but he’s hardly alone.

If Obama’s speech reflected the growing influence of the “tea party,” it also displayed the president’s continued eagerness to spend on infrastructure, high-speed rail, clean energy, and research and development. For all the talk about Obama tacking to the center, he is — rightly — hewing to the principle that judicious government spending can promote economic growth.

“Our free enterprise system is what drives innovation,” Obama said. “But because it’s not always profitable for companies to invest in basic research, throughout history our government 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.” Recalling a similar surge in spending in the 1950s, Obama called this “our generation’s Sputnik moment.”

Superficially, there is a conflict between the president’s “investment” goals and his expressed desire to cut government spending. But prudent government could allow for both. Ending subsidies for oil companies, as he suggested, might not provide adequate funding for alternative energy research. But the funds could be found elsewhere.

The economic agenda Obama outlined in his speech included two other important objectives: thoroughgoing tax reform that would close loopholes and allow for lower corporate taxes, and the negotiation of further trade agreements (a priority not shared by many in his party).

Although economics loomed largest, there was also a plea for bipartisanship: “We will move forward together, or not at all, for the challenges we face are bigger than party, and bigger than politics.” Cynics would say that, even with post-Tucson amity, bipartisanship is an impossible dream. But there was much in Obama’s speech that lent itself to common ground. The state of the union will depend on how seriously his audience takes his appeal for cooperation.