Economic Optimism in the State of the Union

The central economic message from President Obama in his State of the Union (SOU) speech last night was that the U.S. economy was on a strong footing and well prepared to prosper in a dynamic and rapidly changing global environment. This is hardly a surprising message, but notable coming at a time when the 2016 presidential campaign is being driven by populist messages of economic decline and aversion to globalization. Running briefly through a list typical of SOUs, the president noted job growth including in manufacturing, developments in clean and conventional energy, educational improvements including rising high school graduation rates and student loan relief, improved medical insurance coverage, and the recent bipartisan agreement on No Child Left Behind among his achievements. Indeed, with unemployment at 5 percent and growth at around 2.5 percent backed by highly accommodative monetary policy, the president had a good macroeconomic story to tell, while acknowledging that a great deal more had to be done to boost middle class incomes and improve economic security.

Thematically, the broader message from the economic portion of the speech was that the pessimism and prejudice against immigrants fueling populist candidates in the presidential campaign are unwarranted. A gap between people’s pessimism about the economy and the actual state of the recovery is a common element of American politics, but the disconnect has perhaps never been greater. The president took on declinism directly, and argued that immigrants aren’t driving down wages but are contributing to the economy, linking his case for a vibrant U.S. economy to his broader case that the country was well prepared to overcome the challenges we face.

A second message, linked to the first, was the president’s embrace of change as a driver of economic prosperity. Thus his call for the United States to ensure that people could benefit from the “new economy”, notably through gains from technological change. At several points, the president highlighted both the opportunities and the disruptions that continue to be caused by technological change.  Such change was unavoidable, but also underpinned the income inequality and insecurity that many feel and was a justification for government to support the needed transitions. In many respects a traditional Democratic Party argument, at the same time it reflects a thoughtful update for the new economy.

The call to embrace a dynamic, changing economy also underpinned his call for Congressional approval of his signature trade agreement, the Trans-Pacific Partnership (TPP).  While I remain optimistic that TPP will eventually be passed, it is hard to envisage a vote in the Congress before the lame duck session after the election at the earliest.

In the end, the President’s views of the economy are unlikely to change minds.  But if it influences the debate on the campaign trail, it will have made a positive contribution.