Yesterday I tried to neutrally summarize the President’s 5,000+ words economic speech delivered last week at Carnegie Mellon University. Today I’ll give my views on the substance.

The new foundation is simply bigger government

Setting aside the tone, the President’s economic speech was simply an argument for bigger government. It shouldn’t surprise anyone that the President is for bigger government. I am a bit surprised that he’s willing to say it.

He frames the choice as one between Republican anarchy and his self-described reasonable middle ground balance of government and the private sector.

THE PRESIDENT: But to be fair, a good deal of the other party’s opposition to our agenda has also been rooted in their sincere and fundamental belief about the role of government. It’s a belief that government has little or no role to play in helping this nation meet our collective challenges. It’s an agenda that basically offers two answers to every problem we face: more tax breaks for the wealthy and fewer rules for corporations.

The last administration called this recycled idea “The Ownership Society.” But what it essentially means is that everyone is on their own. No matter how hard you work, if your paycheck isn’t enough to pay for college or health care or childcare, well, you’re on your own. If misfortune causes you to lose your job or your home, you’re on your own. And if you’re a Wall Street bank or an insurance company or an oil company, you pretty much get to play by your own rules, regardless of the consequences for everybody else.

The President sets up three straw men to make his case:

  1. Republicans want a Lord of the Flies-like anarchy.
  2. His critics claim the President wants socialism.
  3. We are coming out of a “lost decade” of failed economic policies that we must reject for the future.

The choice America faces, the President argues, is between no government and a reasonable balance.

The actual choice America faces is simply whether, compared to where we are now, we want bigger or smaller government. We are arguing about changes on the margin, not about a choice between anarchy and socialism.

As Greg Mankiw puts it, the relevant question is not whether you’re a libertarian, it’s whether you’re a libertarian at the margin. It’s not crazy, deceptive, or evil to believe there are significant roles for government in our society and our economy while at the same time arguing for less government than we have now, or while arguing against massive expansions of government.

The President also makes a silly argument. He takes specific examples of bigger government (like seat belts) and points out that at the time they were opposed by those who favored smaller government. He chooses as examples government policies which are overwhelmingly accepted in today’s society. He then implies that such flawed judgment must also apply to those who oppose his new favored expansions of government. I don’t think I need to walk through all the reasons why this logic is flawed.

I think the “lost decade” argument is also a straw man but will respond to it at another time.

The substance of the President’s new foundation

The President’s foundation is built on two core concepts:

Concept 1: The key to greater economic growth is more government spending on infrastructure, broadly defined to include education and job training.

Concept 2: Greater economic growth will result from the new health care laws, upcoming financial sector reforms, and as-yet undetermined policies that will result in “our government less burdened with debt.”

To demonstrate concept 1, here is a key quote from the speech, in which I will substitute “government spending on” for the President’s functionally equivalent words “investments in”:

It’s a foundation based on government spending on our people and their future; government spending on the skills and education we need to compete; government spending on a 21st century infrastructure for America, from high-speed railroads to high-speed Internet; government spending on research and technology, like clean energy, that can lead to new jobs and new exports and new industries.

The President is making the case for increased spending for a wide range of government programs. That’s a decades-old debate, and I’m not sure there’s much “new foundation” about it. I would instead prioritize slowing long-term entitlement spending growth, keeping taxes low, increasing global free trade and investment, and increasing flexibility in our labor markets and consumer-based decision-making in our health care markets. I would also prioritize K-12 education, but that is largely a state and local issue, and I surmise that insufficient funding is not the core weakness in our elementary educational system.

My relatively lower prioritization of public infrastructure does not mean I want to tear up the public highway system, or defund basic scientific research. Once again, the practical argument is about marginally more government spending on these priorities vs. marginally less, not whether they should be funded at all.

Concept 2 is a bit of a catch-all, supplemented by the laundry list in part III of the President’s speech. Team Obama has taken every economy-related policy proposed by the President and argued that it will result in greater economic growth. At best that’s an exaggeration.

I believe we need significant changes to our financial policy and structure, some of which will involve greater regulation and stricter supervision and oversight. Not yet knowing whether any government policies actually contributed to the Gulf spill, I would favor tighter safety regulation of deepwater drilling to drastically reduce the chance of this happening again.

These bigger government views on two specific areas can be consistent with a view that the health care laws moved in the wrong direction, and that our health care systems would be more efficient and effective with less government involvement. They can be consistent with opposing the House-passed cap-and-trade bill, and with a general reticence to embrace massive expansions of government regulatory power. They can be consistent with vigorous opposition to spending and taxes that are projected under the President’s budget to increase to historically unprecedented levels.

The choice described by the President does not exist. Excepting maybe Rep. Ron Paul, there are few true libertarians in public office. To my chagrin, many Republicans in Congress like many government spending programs as much as Democrats (think farm subsidies). The typical Washington spending fight is about whether real government spending on program X should increase 1 percent next year or 4 percent. In both cases government is growing. Anarchists don’t exist in American politics, and to claim that elected Republicans believe that “government has little or no role to play in helping this nation meet our collective challenges” is absurd.

The choice America faces is whether or not we want a wholesale expansion of government, and whether on the margin our society is improved by bigger or smaller government.

In targeted cases like oil drilling safety and certain financial sector problems, I’m for slightly bigger government. In almost all other cases, I believe we’d be better off as a society leaving many more resources and decisions in the hands of private citizens. This is exacerbated by being on a path of unsustainable future spending growth. I think it’s particularly irresponsible to suggest a greater role for government when we don’t know how to meet outstanding promises already made for the future.

The President says his new foundation will support a more rapidly growing economy. All I see it supporting is a bigger government.

(photo credit: White House video)