RebelCapitalist: Financial Information for the Rest of Us | About that State of the Union Address

About that State of the Union Address

Jan 26, 2011 | By: Mr_Blue | Tags: budget deficit, obama, fallacy, state of the union

Last night’s State of the Union address was so 2009. The stuff about investments sounded great but are just words now that republicans control the House and can filibuster anything in the Senate. We could have used more investments (instead of tax cuts) back in 2009 particularly when democrats controlled both House and Senate.

Maybe the White House will decide it actually wants to fight for something. That would be a change for the Obama Administration.

There was some other nice talk about not cutting Social Security but of course democrats are known to cave to republicans so there’s always the possibility that President Obama and other dems would agree to cuts to Social Security in the interest of appearing bi-partisan. Here is the transcript of last night’s address.

Others have provided a detailed analysis of the address such as Mike Konczal and Marshall Auerback which are (IMO) good. But there is one thing I want to focus on that really drives me crazy when I hear it particularly from politicians and media talking heads. President said this last night:

But now that the worst of the recession is over, we have to confront the fact that our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same.

First, he said this after the talk about investing in infrastructure and technology. So, how does he expect to address the deficit if he continues to spend on the important items he mentioned - are they just words or will he propose token spending levels for these investments. Furthermore, who says our deficit is not sustainable? We have a long history of deficits. Sure, maybe not as high as today but there is another factor in the budget deficit equation - the revenue side. If we had full employment or something near to it our deficit wouldn’t seem so scary.

Second, and most importantly, is this notion of equating families or even businesses to the federal government. Those who make this fallacy of composition are either clueless or lying. It’s all about sectoral balances (government, private sector and foreign sector) - the government sector with its deficit provides the private sector (which includes families) its savings. The other big difference between families and federal government is that the federal government is an issuer of a currency - try and issue your own currency and see what happens. These are huge differences. Denying or failing to recognize these differences are part of the reason we are experiencing slow growth and high unemployment now.

Good luck.