Last night’s State of the Union was a soaring oratory, and one that was widely lauded. CBS News found that 91% of the public approved of the speech, findings that were closely echoed by CNN. It’s unsurprising, seeing how the speech’s major themes – competitiveness, innovation, growth, job creation, and deficit reduction – have been top priorities across the political spectrum for a long time.
Unfortunately, when it comes to implementing these broad goals, the President’s plans are doomed to fail, because of a fundamental disconnect between his vision for America and the realities of governance. Although some may wish it so, the government cannot be all things to all people. When it tries to do too much, it fails at doing well those few things that it is supposed to do.
In his speech last night, President Obama asserted, “None of us can predict with certainty what the next big industry will be, or where the new jobs will come from.” He is correct. But alas, in the next breath, he offered a litany of ways the government will try to do just that – through increased federal spending to support select industries and create jobs.
It is time to acknowledge that the government cannot create new jobs – it can only reallocate them by shuffling resources. And this shuffling comes with a real cost. No man, or group of men, can direct the economy perfectly. Unlike markets, which through a natural process absorb information that comes from millions of sources, those in government get only partial information and therefore make less than fully informed decisions. By inefficiently allocating resources, these efforts make us worse off. There is simply no reason to think that government will do a better job determining what technologies are promising, and what isn’t feasible, than the markets. It's a mistake for this Administration to try.
To truly create economic growth, the private sector must be given uniform rules that are applied equally. Regulatory carve-outs must end. Rather than doling out subsidies and tax credits to well-connected corporations, all businesses – and all industries – should be treated the same, and allowed to compete on an objectively level playing field. On both sides of the aisle, politicians agree on the need for “simplification” of the tax code, and a need to “broaden the base” – but it’s how we get there that will matter.
Comprehensive tax reform will not be easy, and it will not be popular. Politically powerful constituencies will protest as their deductions are rescinded. Yet it is imperative that the country move towards an impartial tax code that does not incentivize (or punish) behavior. This tax reorganization shouldn't be a stealth way to increase taxes. Rates should be lowered as loopholes are closed. We cannot burden individuals or businesses further with larger tax bills.
That's why spending reform needs to be a top priority for this Administration and Congress. Simply “freezing” spending at prior levels is lazy; after all, the government has doubled in size over the past 10 years. We shouldn't lock in this bloat. Instead, we must eliminate programs. We must scale back the size and scope of government. All programs must be on the table – including the “Big Four” – Medicare, Medicaid, defense, and Social Security. State and local governments must learn to stand on their own, and pay for their own programs with their own revenue. Bad management should not be rewarded; we cannot bail out the states.
As South Carolina Governor Nikki Haley said in her inaugural speech two weeks ago, “we will not reach prosperity by increasing [the] government's share of our economy.” Now is the time for humility – to admit that our knowledge is not all encompassing, and that our government is not all-powerful. Only then will we will be able to restore our nation to greatness.
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