The Foundations of Economic Recovery and Growth

State of the Union 2010

Michael Ettlinger and Heather Boushey provide analysis of President Obama’s solutions for economic recovery and long-term growth: job creation, regulatory reform, health care reform, a clean energy economy, and improvements to education—all achieved in a fiscally responsible way.

President Barack Obama walks down the center aisle greeting members of Congress on his way to deliver his State of the Union address. At right is Treasury Secretary Tim Geithner. (AP/Tim Sloan)
President Barack Obama walks down the center aisle greeting members of Congress on his way to deliver his State of the Union address. At right is Treasury Secretary Tim Geithner. (AP/Tim Sloan)

The president laid out his vision last night for a more thriving, competitive U.S. economy. He reminded us in his State of the Union address that we have already lived through a lost decade—the 2000s saw no income gains for the typical American family—and we cannot afford another. He offered economic plans to address both the immediate crisis and our long-term needs. Job one, of course, is recovering the jobs lost in the recession through intensive interventions. But even if the economy is back on stable footing, there’s more to be to done to get the country on the long-term growth path from which we so greatly departed in the last “lost” decade.

In describing the elements of his plan for the long term, he held to the elements of the five pillars that form the foundation of economic growth, which he articulated in a speech he gave at Georgetown University on April 14, 2009: reforming regulation of the financial sector, new investments in education, new investments in renewable energy and technology, new investments in health care, and achieving all this with a fiscally responsible federal budget. The focus throughout the speech was the impact on the middle class, in particular, including the announcement of several policies developed by the Middle Class Task Force led by Vice President Joe Biden.


The descent into the Great Recession established without a doubt the necessity of establishing a set of rules and regulations to guide our nation’s financial structure. It was a disdain for regulation by those tasked with enforcing the rules—and an incoherent regulatory structure that allowed them to get away with it—that caused the financial crisis and precipitated the Great Recession that has left more than 15 million Americans unemployed and searching for work. We cannot move forward on a path of sustained economic growth until we have addressed the lapses in financial regulation. Delaying on this policy agenda is only hampering economic growth, and President Barack Obama recognized this in his speech last night. Financial firms need to know the new rules on leverage requirements, their consumers, and what kinds of businesses can be combined under one roof, so that they can adapt their business models and get back to the important role they play in the economy of providing credit and markets.

Energy and climate

Addressing the twin issues of energy and climate is absolutely necessary for our economic competitiveness. As the president pointed out last night, the nation that invests in innovation will have the competitive advantage. He laid out both a long-term and a short-term plan. He laid out a long-term vision for investing across the value chain—not just in innovation in alternative energies, but also in production and improving efficiency. And in the short term, we could be doing more to lay the foundations for long-term economic growth by doing more on the issue of efficiency. The HOME STAR program that provides consumers with rebates for investments in energy efficiency not only begins to address our long-term issues, but spurs demand in the short term, which boosts much-needed job creation.

Health care

The lack of affordable health care for all is also hampering our economic growth, primarily through rising costs, which push up government spending and add to our long-term deficits. Employers and employees also suffer from negative effects of the broken system, and these add to our economic woes. Uninsured Americans cost our health care system much more than providing preventative care. Rising health insurance costs burden employers and employees. But health care reform can help improve health care and create jobs in the long run. Passing health insurance reform must not fall from our agenda—our nation’s families as well as the economy depend on it.


The president also expanded on the importance of education. The importance of education to our nation’s economic success isn’t controversial. Resources and reform are the key. His speech addressed the entire gamut of education, but the president’s particular focus on community colleges is welcome attention to an oft-neglected area. The large cadre of working learners that need skills enhancement are vital to our economy.

The deficit

The president also spoke about the deficit. He described the lamentable fall from a surplus of $200 billion in 2000 to the over $1 trillion deficit that his administration inherited. This degeneration of our fiscal situation was caused primarily by irresponsible tax cuts, going to war without paying for it, and other expansions of unpaid-for spending under the last administration—all compounded by the recession. The president rightly did not call for any moves to address the deficit in 2010—when economic recovery is so fragile. The most laudable proposal was his re-affirmation of his intention to let the Bush tax cuts on those making more than $250,000 expire. His call for freezing a piece of discretionary spending was, however, disappointing. There is no reason to target this area, and the savings are likely to be quite modest. We’ll have a fuller picture of how this proposal fits in with the broader budget when that is released on February 1, but at this point it seems ill-conceived. The commitment to a budget commission may help in reaching an agreement on the very tough decisions needed to address our budget challenges, but it doesn’t make those challenges any less substantial. Ultimately, Congress and the president will have to act.

Congress has made significant progress this year on much of this agenda. Both the House and the Senate have passed health insurance reform and the House has passed financial regulation and an energy and climate bill. Education has also been addressed. The challenge now is working through the details to get bills to the president that he will sign.

As the president laid out last night, each of these issues are critical to our economic future and must be addressed for the United States to remain an economic powerhouse. But the president also acknowledged that our primary goal must be to create jobs in the short term.

Job creation

The president laid out his ideas for promoting immediate job growth: $30 billion from TARP for community banks, a jobs tax credit for small businesses who hire workers or raise wages, eliminating the capital gains tax credit on all small business investment, putting Americans back to work building infrastructure, and rebates for home efficiency. Funneling TARP funds toward immediate job creation makes sense; those funds were intended to restore our nation’s financial health, and without jobs, consumers will continue to face challenges, which is hampering our nascent recovery.

What our economy needs now is another boost in spending. It is unlikely that tax breaks aimed at investment will make a significant contribution to boosting jobs in the short term. Businesses are not hiring because they do not see sufficient demand for their goods and services. Creating tax breaks on the investment side does not solve this problem; what we need is to take actions to boost demand. A basic step to boosting demand is to get the unemployed back to work. Employing more people doesn’t just get those workers back on the job; it affects the momentum of the economy, which ultimately creates the cycle of private-sector job creation that we need. Unemployed workers have few dollars with which to purchase goods and services, and giving them a job injects an immediate boost to their family budget and our national economy. We need to build on the successes of the American Recovery and Reinvestment Act and use scarce federal dollars in the most efficient way to boost demand and get the unemployed back to work.

As the president mentioned, the House has already passed a jobs bill that would redirect $75 billion of TARP funds toward infrastructure investment and aid to states, which would immediately boost demand in the economy. This is important legislation, and the Senate should match—and increase—that investment. A record number of Americans are out of work and experiencing excruciatingly long job searches—4 in 10 unemployed workers have been pounding the pavement searching for a new job for at least six months—and we need to do more to get people quickly back to work. Infrastructure investment and aid to the states must be a top priority, along with direct investments in job creation through initiatives such as expanding our national service programs.

The president and vice president laid out a list of key investments for the middle class earlier this week, which signaled a recognition of the profound transformations that the American workforce and American family have undergone over the past 40 years. As the Center for American Progress first highlighted in "The Shriver Report: A Woman’s Nation Changes Everything," two-thirds of families with children are headed by two working parents or a single working parent. Our economic policies must be responsive to this reality. The president’s announcement of a major new investment in childcare for America’s working families and a down payment in helping families support aging relatives is a critical first step toward job stability for the millions of American workers who are one step away from losing their job due to breakdowns in family care arrangements.

But this is only a first step. Workers need access to a variety of labor protections and on-the-job benefits in order to fully address the very real middle-class anxieties around the day-to-day challenges of managing the dual responsibilities of work and family. Individual workers and families have been bearing the full responsibility of managing work-family conflict, which cannot continue. The government is doing the right thing by addressing care issues, but employers should also recognize that these policies are good for their employees as well as good for business and should be a part of the solution. Workplace flexibility, paid family leave, and paid sick days are the next key steps that we look to this administration to move forward.

The State of the Union address significantly offered a re-affirmation of the president’s commitment to the plan for achieving long-term economic growth that he developed during his run for office and articulated in his April 14 speech. It is a vision for the economy that the Center for American Progress has long favored. Regulatory reform, health care reform, a clean energy economy, and education—all achieved in a fiscally responsible way—are the keys to a future American prosperity. But to get there, we need to start by creating jobs now.

Michael Ettlinger is the Vice President for Economic Policy at American Progress, and Heather Boushey is senior economist at the Center for American Progress.

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