State of the Union Jitters

Tonight will be President Obama’s first State of the Union address since taking office. It couldn’t come at more challenging times.

The backdrop has to appreciated: (1) a sluggish economy and shaky stock market – many think this is the “Eye of the Storm” not the beginning of a recovery; and (2) government spending that is producing mountains of debt; (3) weak consumer confidence; and (4) a popular voting base that just sent a shock wave to Washington last week from of all places: Massachusetts!

The President will propose a new focus on jobs, help for small business in the form of new tax breaks, and a freeze on Federal Budget spending.

Let’s address the latter. To quell concerns about the staggering federal deficits – and notice that I did not say “solve” the deficits, because you simply can’t in the short run – the President will propose limits on discretionary spending…that’s spending other than for military, veterans, homeland security, international affairs, Social Security, and Medicare and Medicaid.

Although a laudable step to control spending, there are several problems with this strategy: (1) it only affects 17% of the Budget; (2) it doesn’t cut discretionary spending, it just limits increases; and, most importantly (3) the savings will be more than offset by planned increases in help for middle class families for child care, education, elder care, and other programs.

The upshot is simple: the promise that the Government can fix the problems of a huge, complex, free enterprise economy is simply impossible. What it takes is all players pulling on the rope: consumers, businesses, and foreign participants. What the government needs to do is provide good rules and regulations and let the players play the game – not the referees.