Obama challenged Republicans who are now in charge of the House to carry out their promises in November to do away with earmarked spending in the federal budget. Earmarks have been used by elected officials in Washington from both parties to push through wasteful pork-barrel spending measures without proper debate or review.
One of the most important things about the State of the Union speech was a key point which Obama deleted. It did not contain an endorsement of any of the controversial budget cutting recommendations suggested by his bi-partisan deficit reduction commission in November, such as raising the retirement age to qualify for Social Security benefits. Instead, Obama is challenging Republicans in charge of the House to make the first move, and take the political heat, for spending reduction proposals which are bound to draw criticism from those who will be directly affected.
Obama’s speech sounded the themes of bipatisanship and civility in the wake of the shooting in Tucson that left Gabrielle Giffords with a serious brain injury, and killed six people, And wounded 13. One of Obama’s guests for the address was an intern on Giffords’ staff whom Obama has praised as a hero for rushing to give Giffords lifesaving first aid in the moments after she was shot.
Also reflecting the new emphasis on Washington on civility was a non-traditional seating scheme for the speech, in which Democrats and Republicans sat in bipartisan pairings, rather than on opposite sides of the chamber.
NEW EMPHASIS ON COMPETITIVENESS
The theme of improving American competitiveness as the key to future prosperity is consistent with a number of new White House appointments and policy moves he has made since the November elections.
By adding a number of high profile, pro-business economic policy advisors to his team, and agreeing to compromise with Republicans to extend the Bush tax cuts, Obama has been recasting his radical liberal image which American voters rejected during the midterm election. This is all part of an effort to reposition Obama closer to the political center as he launches his 2012 re-election bid.
He started the process at the top, with the appointment a few weeks ago of Clinton’s former Commerce Secretary, William Daley, as the new White House chief of staff. He continued the process last week by appointing the chief executive of General Electric, Jeffrey Immelt, one of the most respected leaders in American industry, to head the new Council on Jobs and Competitiveness.
The council replaces the Economic Recovery Advisory Board that Obama created two years ago under former Federal Reserve chairman Paul Volcker to formulate the administration’s response to the 2008 financial crisis and subsequent recession. Volcker, whose proposal that major banks be banned from making speculative investments in financial markets put him at odds with Wall Street, will be stepping down as a principal economic advisor to Obama.
In remarks at a GE plant in its home city of Schenectady, New York, Obama said, “the past two years were about pulling our economy back from the brink. The next two years, our job now, is putting our economy into overdrive. Our job is to do everything we can to ensure that businesses can take root and folks can find good jobs and America is leading the global competition that will determine our success in the 21st century,” Obama said. He then said that his goal was to double US exports in five years.
The stubbornly high national unemployment rate was a major factor in the Democrat defeat last November, and Obama understands that it must be substantially reduced for him to have any realistic hope of re-election in 2012.
IMMELT AT GE
Since taking over the leadership of GE from the legendary Jack Welch in September, 2000, Immelt has emphasized the importance for US companies of selling into emerging markets. Most recently, he announced a joint partnership between GE and a firm in China to build jet engines in that country for China’s developing commercial aircraft industry. China is the world’s largest new market for commercial jetliners, and GE competes vigorously with Pratt and Whitney and Rolls Royce to supply jet engines for the latest generation of those aircraft made by Airbus and Boeing.
But despite its expansion in international markets for products like jet engines, heavy industrial equipment and medical imaging, GE has still struggled in recent years, losing more than half of its value since Immelt took over. Most of that decline came as a result of losses due to bad loans made by GE Capital, requiring GE to seek financial aid from the government to survive the financial crisis.
Immelt, a self-described Republican, said that his duties as the head of Obama’s new jobs and competitiveness council would not interfere with his responsibilities as the head of GE, and that he was staying on at the company.
OBAMA NOW SEEKS REGULATORY REFORM
Meanwhile, Obama has continued to announce policies intended to win the approval of free market advocates.
In an op-ed piece published in the Wall Street Journal last week, Obama announced that he had issued an executive order calling for a review of federal health, safety and environmental regulations. Its purpose is to identify and eliminate “those rules that have gotten out of balance, placing unreasonable burdens on business–burdens that have stifled innovation and have had a chilling effect on growth and jobs.”
By calling for regulatory reform, Obama is trying to prove that he is serious about restoring US “competitiveness” as a top priority of his economic agenda.
While Obama began the op-ed by defending the need for regulations, in order to make sure that the free market works properly, he also admitted the need for a “proper balance,” that allows for innovation and growth, and preserving “freedom of commerce while applying those rules and regulations necessary to protect the public against threats to our health and safety and to safeguard people and businesses from abuse.”
Obama emphasized that his administration was dedicated to providing effective regulation to avoid the kind of abuses that contributed to the financial crisis, but that they also had to be “common sense rules of the road that strengthen our country without unduly interfering with the pursuit of progress and the growth of our economy.”
OBAMA PROMISES TO KILL OBSOLETE RULES
He wrote that the review has become necessary to “bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades.”
He promised to remove “outdated regulations that stifle job creation and make our economy less competitive. . . Where necessary, we won’t shy away from addressing obvious gaps: new safety rules for infant formula; procedures to stop preventable infections in hospitals; efforts to target chronic violators of workplace safety laws. But we are also making it our mission to root out regulations that conflict, that are not worth the cost, or that are just plain dumb.”
Obama’s latest efforts to address the need to help the economy create more jobs are due in part to the dismal December unemployment report issued by the US Labor Department, which showed that the strong business recovery in recent months has not been matched by increased job creation.
UNEMPLOYMENT NOT GOING AWAY SOON
While the national jobless rate fell from 9.8 percent in November to 9.4 percent in December, that was mostly due to the fact that 260,000 discouraged jobless workers gave up and dropped out of the US workforce.
Investors and economists were particularly disappointed by the slow recovery in hiring by the private sector, which added only 103,000 jobs to their payrolls, which is not enough to keep up with population growth. In another discouraging Labor Department statistic, new job openings fell by 80,000 in November, signaling that a sustained job market recovery will take more time to develop, despite rapid growth in other parts of the economy.
Despite the longest stretch of unemployment rates above 9 percent since monthly records began in 1948, American businesses and investors have prospered since Obama took office. The Standard & Poor’s 500 Index has risen more than 50 percent since his inauguration, and US corporate profits reached a record in the third quarter of 2010.
Yet, according to the predictions of economists, the national unemployment is expected to remain stubbornly high, averaging 8.5% in 2012, when Obama will run for re-election.
According Tad Devine, a Democratic strategist who worked on the presidential campaigns of Al Gore in 2000 and John Kerry in 2004, “Obama has to convince people that he got the country out of a deep ditch, and now he knows where he wants to take us. I don’t think he has supplied that short, coherent economic vision for the future yet, and I think the State of the Union is an opportunity for him to do it.”
Devine also believes that to win re-election, Obama must present an economic strategy the public can easily grasp. “He’s got to lay out an economic vision for the future that has a runway longer than two years. He’s got to say if we stay on this course we can get back to prosperity, and there’s only one way to get there.”
A MIXED PICTURE
The national economy today presents a mixed picture. The weakest sector remains the housing industry, which is still depressed by a huge backlog of foreclosed homes on the market.
Purchases of previously owned homes for 2010 were the lowest since 1997. The median existing home price was $168,800 in December, down 1 percent from a year ago. Prices were dragged down by foreclosures and other distressed sales, which made up 36 percent of the market.
Banks remain reluctant to lend to all but the most creditworthy borrowers. Even profitable small businesses are still having trouble getting financing. On the other hand, rising worldwide demand for American goods has prompted a flurry of recent hiring announcements due to a strongly rebound in the manufacturing sector. US exports reached a two-year high in October, due in part to a 10 percent drop in the value of the dollar since March, 2009.
Auto sales in the United States also jumped by 11 percent last year, A total of about 11.8 million cars and light trucks were sold in the US during 2010, up from 10.4 million in 2009.
A number of recent public and private economic projections agree in predicting moderate 3% to 3.5% growth in 2011, up slightly from last year’s rate. The prediction of the economic advisory committee of the American Banking Association (ABA) was typical in anticipating that the private sector of the US economy will add 2.1 million jobs this year, double last year’s total, but that the unemployment rate as a whole will remain at the current 9.4% level.
GROWING DANGER FROM RISING OIL PRICES
In recents congressional testimony, Fed chairman Ben Bernanke defended his controversial QE2 stimulus program which calls for the Fed to buy $600 billion in Treasury bonds. Critics claim that QE2 has further weakened the value of the dollar and accelerated the increase in prices for key commodities, particularly crude oil and gasoline.
Nationwide, gas prices at the pump are now well above $3 a gallon, the highest level since 2008. Some industry analysts are predicting that the price of gas will hit $4 a gallon within a few months. John Hormeister, the former president of Shell Oil, recently predicted that the price of gas could reach $5 a gallon in 2012. Economists worry that rising gas prices reduce discretionary consumer income, especially among poorer families, and will slow down the recovery.
The International Energy Agency (IEA) which monitors worldwide oil demand predicted last week that oil consumption will continue to increase, driven, in part, by colder than usual winter temperatures across the Northern Hemisphere and an accelerated economic recovery. It warned that this would drive prices for crude oil above the $100 per barrel level. At that level, oil prices would “pose a real economic risk” for both oil producing and consuming nations. The IEA therefore urged the OPEC oil cartel to increase its production quotas to help meet the growing demand without driving the price of oil even higher.
APPOINTMENT OF DALEY SIGNALS SHIFT
The decision to replace the more liberal and partisan Rahm Emanuel with the moderate, business-friendly Daley as his new White House chief of staff was one of the first signal of a shift in Obama’s strategy toward the political center.
Daley, 62, is a member of a venerable Chicago political dynasty, as the son and brother of two of its former mayors and bosses. Daley also served as an adviser to several presidential candidates, and has extensive experience in the corporate world. Most recently, he had been serving as Midwestern chairman of J.P. Morgan Chase, which paid him as much as $5 million a year to supervise its Washington lobbying efforts. Among his duties for Chase, Daley served as chief liaison with the White House, frequently consulting with Valerie Jarrett, a senior adviser to Obama, and Rahm Emanuel, whom he is now replacing.
When Obama introduced Daley as his new chief of staff, he said: “Few Americans can boast the breadth of experience that Bill brings to this job.” The president added that he was “convinced that he’ll help us in our mission of growing our economy and moving America forward.”
BRINGING AN OUTSIDER’S PERSPECTIVE TO THE WHITE HOUSE
Daley has brought an outsider’s perspective to a White House that has been criticized for being too insular. Even though both consider Chicago to be their home, Obama and Daley are from different parts of the Democrat ideological spectrum. Daley has earned a reputation as an outspoken centrist, critical of the party’s liberal drift under Obama’s leadership. He warned in December 2009 that the party should “plot a more moderate, centrist course or risk electoral disaster not just in the upcoming midterms but in many elections to come.” He also opposed Obama’s creation of the Consumer Financial Protection Bureau to oversee the banking industry, and objected to elements of the Obamacare bill.
As a result, some liberal Democrats were critical of Obama’s selection of Daley. Others predicted that Daley’s former corporate and banking ties would raise conflict of interest problems in his White House post. They suggest that he will have to recuse himself from any matters relating to Chase, Abbott and Boeing as well as discussions involving financial regulations, the drug benefits in health care reform, and any major Defense Department contracts for which Boeing is competing.
Daley has a long record of assisting Democrat presidential candidates. In 1992, he ran Bill Clinton’s presidential campaign operation in Illinois. He had expected an appointment as Clinton’s transportation secretary in return. That never happened, but he was soon appointed to the board of Fannie Mae and, a short time after that, accepted a request to steer Clinton’s free-trade agenda through Congress. The North American Free Trade Agreement soon followed, and in 1997 Daley became commerce secretary.
Former colleagues credit Daley with sharp political instincts and the ability to stay calm in a crisis. Daley advised former Vice President Al Gore not to concede the 2000 presidential election immediately. He also encouraged Vice President Joe Biden to end his weak White House bid in 1988. Daley is also a close friend of senior Obama adviser David Axelrod.
Despite Daley’s lifelong Democrat affiliations, Republican Senate Minority Leader Mitch McConnell was enthusiastic about his choice as White House chief of staff. Thomas Donahue, president of the US Chamber of Commerce, called Daley a “strong appointment.”
REED JOINS BIDEN’S STAFF
The latest Clinton administration veteran to join the Obama White House is Bruce Reed, who will take over as chief of staff for Vice President Joe Biden. He is replacing Ron Klain, who is leaving for a job with former AOL chairman Steve Case. Reed, is known as a centrist Democrat, who encouraged Clinton to follow free trade and deficit reduction during the 1990s.
Earlier, Obama named Clinton era veteran Gene Sperling, 52, to serve as his director of the National Economic Council, replacing Lawrence Summers. Sperling helped to negotiate the deal with congressional Republicans to extend the Bush tax cuts for the wealthiest Americans in return for an extension of unemployment benefits and other tax breaks intended to stimulate the economy.
Sperling is not an economist by training, but he is a knowledgeable Washington political player. He also has experience negotiating with Republicans which may prove useful to the administration over the next two years as it tries to govern in cooperation with a Republican-controlled Congress.
As a counselor to Geithner, Sperling has participated in some of the debates that helped shape the Obama administration’s economic policies and responses to the financial crisis over the past two years. He worked with the White House auto task force that engineered the government takeovers of General Motors and Chrysler and other financial initiatives such as a $30 billion program to increase lending to small businesses.
In the Clinton administration, Sperling served as National Economic Council director, and earned a reputation for working very long hours in the office, and for late-night phone calls and e-mails to colleagues.
OBAMA’S OUTREACH TOWARD BUSINESS
While Obama has been filling the vacancies in his team with moderates from the Clinton years, and has made other moves to reverse the image that he is anti-business, his highest priority remains protecting the liberal policies that he put in place during his first two years in the White House. Starting with Obamacare, these job-killing programs have been targeted by Republican congressional leaders for repeal or extensive revision. The outcome of that effort is likely to have a greater impact on American competitiveness than any new policies that Obama’s and recent appointees are likely to initiate.
The Washington Post and Bloomberg News contributed to this story