Mr. Speaker, Mr. Vice President, members of Congress, and fellow Americans:
Tonight I want to bring some clarity to the arguments about our economic condition and where the path to recovery leads—we will not see a return to full employment or strong economic growth for several years to come.
This may be difficult to swallow, especially for those facing unemployment, overwhelming debt, and falling wages. But the very problems weighing down the American economy are misaligned skills in the work force, a debt supercycle that still requires years of deleveraging with households contributing more towards savings and paying down debt than towards consumption and investment, and transformations in the structure of economic productivity. These are not challenges that will be quickly overcome.
The good news is that there are many things our government can do to help the job market. Tonight I will propose a series of projects to help American entrepreneurs thrive, to enable American businesses to compete, and to promote economic freedom as the path to recovery for our great nation.
First, let me be clear: We must understand that the causes of our high unemployment cannot be separated from the underlying causes of today’s overall lethargic recovery.
We face the aftermath of a financial crisis that was brought on by a glut of debt and overleveraging. The contracting economy can not be stimulated back to health, and until the debt is drained from the system we will have slow growth, capital sitting on the sidelines, and a slow return of new jobs.
Moreover, we won’t see a strong recovery until the household debt problem specifically goes away—not just because it would help recovery for the housing industry, but because it would eventually mean more consumption and investment.
Still, these are not our only challenges. Today’s unemployment troubles are not only the result of the great contraction. In fact, our economy is also undergoing fundamental changes.
The low-hanging fruit of innovation that helped bring America so much prosperity is gone. When Henry Ford turned his Model-T into a full-scale assembly line he started an innovative process that created millions of jobs. But today’s innovations, such as Google, smartphones, and advanced medical technologies do not create the same number of jobs. Today’s innovation brings great advantages to quality of life, but new technologies do more to automate and bring efficiency than to create the same large number of jobs as those previous innovations brought.
Companies today are able to do more with less. Since 1990, manufacturing output has grown 30 percent. But at the same time the number of workers employed by manufacturing companies has fallen by more than 50 percent. This indicates that the American manufacturing sector is not dying or getting shipped overseas, but instead is simply becoming more automated and less dependent on manual labor.
Unless we want to return to typewriters, or rid ourselves of washing machines to once again clean our laundry with washboards and elbow grease, this is a trend we must accept in order to meet the new challenges ahead.
A brief glance at population statistics indicates the scope of what we face. Since the turn of the millennium the number of American workers has grown by more than 10 million, yet the number of private-sector jobs has declined by two million. That is not because of the recession or contraction, but instead a sign that our economy has not adapted well to changes in the 21st century.
It used to be that employers would keep some workers on payrolls through tough times to ensure that the talent remained when things got better. But the ability for employers to find workers at the last minute to fill a need—particularly with the proliferation of job-posting websites in the past decade—has changed this labor hording attitude. That means more unemployment in today’s highly interconnected economy.
The health care and technology sectors have been rapidly expanding in the past few years. However, a number of positions remain open in these fields as employers seek to find labor with the right skills. One critical component of today’s unemployment crisis is that the skills mismatch between what is demanded in today’s marketplace and what is available amongst today’s workers.
This means retraining for manufacturing and construction workers that are unlikely to get their old jobs back even in a strong economy down the road. But that is a process which will take time and demands patience from the American people.
We can reduce the intensity of this skills mismatch in the future by committing ourselves to education reform that breaks from traditional modes of throwing money at the problem and instead seeks better measures of effectiveness and a willingness by local leaders and teachers unions to embrace the approaches which are best for the child—even if those are not the best for administrator pay and security.
There will always be some measure of skills mismatch as capital is readjusted to its best possible use in the economy. But we can work to ensure that U.S. public policy avoids distorting where that capital goes so that no sector of the economy is propped-up for longer than it should survive. An example of this in past is how, in the spirit of pursuing the American Dream, housing subsidies and other programs contributed to the skills mismatch problem by causing an oversupply of capital to flood the construction industry during the bubble period of the last decade.
So we should not hope for a return to 2007, when there were 2.2 million more construction workers then there are today. Nor should we expect that the consolidation of the financial industry, which has shed nearly 750,000 workers since 2007, will reverse course. Instead, we should be looking for the jobs of the future and what it will take to retrain today’s unemployed workforce.
These structural problems cannot be fixed with more direct spending programs, an infrastructure bank built on the failed government-sponsored enterprise model, or an extension of unemployment insurance benefits.
The solution to today's unemployment malaise must be polies that will help the economy in general by freeing up companies and entrepreneurs to pursue expanding or starting business ventures that adapt to the changes in the marketplace.
To this end we should be aware of how regulations and taxes inhibit job creation. Therefore, instead of just talking about how to create jobs, my administration intends to focus on addressing any restriction to economic freedom in the U.S. with the goal of creating an environment for entrepreneurs to thrive.
To do this we must focus on both long-term and short-term objectives. Here are seven areas we can address for change over the long-term:
First, our education system is highly inefficient. Test scores remain at the same level today as in the 1970s, which means given the advancement in teaching methods and technology since then the actual education level is even lower. We need to embrace comprehensive reform, as I mentioned earlier.
Second, the American immigration system is an impediment to economic growth and employment expansion. I recommend that we eliminate all quotas for immigrants that plan to open a business and begin to issue “entrepreneurs’ visas” to highly skilled immigrants. Attracting and retaining top talent is essential for future job creation.
Third, we must overhaul the tax code. Whether it is by eliminating all deductions or simply replacing the income, corporate, and capital gains taxes with a consumption tax, Congress should make tax code reform a top priority.
Fourth, changes to the tax code should be coupled with reducing the long-term debt and deficit through responsible entitlement reform. We must commit ourselves to the necessary changes in Medicare and Social Security that will reduce future liabilities, eliminate waste, and ensure that the social safety net can be maintained for those to which it was promised.
Fifth, recovery in the housing industry, and the return of some related jobs in that sector, will involve getting the foreclosure process back up to speed so that we accelerate the deleveraging process of household debt. To this end I have directed federal regulators to quickly come to a settlement with banks over the mortgage servicing fraud dispute.
I have also decided to end programs that aim to stop the decline of housing prices. As long as housing prices remain higher than buyers are willing to pay, then families that want to move to another part of the country for work will not be able to sell their home. This problem, called labor immobility, has added to the unemployment rate.
Furthermore, to ensure the proper allocation of capital to the housing industry, I will direct Secretaries Geithner and Donovan to initiate the necessary steps to dissolve Fannie Mae and Freddie Mac responsibly over the next five years so that the private sector can once again compete in mortgage finance.
Sixth, not only do we need to approve the pending free trade deals with Colombia, Panama, and South Korea, which will have many short-term benefits, we also need to initiate new free trade talks with Japan, India, Turkey, Indonesia, and Kenya, among others. New free trade agreements open up entrepreneurial potential and produce lower consumer prices. My administration also plans to make completion of the Trans-Pacific Strategic Partnership a priority, which would open free trade with nations from Malaysia to Vietnam to New Zealand.
Finally, we need to curb the regulation burden once and for all. Earlier this year, departments in my administration began reporting on ways they could reduce the regulations on their books. Next, I will be recommending that Congress pass legislation requiring a cost-effectiveness measure for major regulations. Furthermore, I recommend a 10 year automatic sunset clause on each new regulation unless the rule is reviewed and found to provide substantially better impact to business development than intended.
This new framework will require, for example, the Commodity Futures Trading Commission and Federal Reserve to better analyze the impact of their proposed rules under the Dodd-Frank Act. Additionally, over the long-term, we will need to repeal harmful elements of Dodd-Frank and address the gaps in legislation that still leave financial markets distorted by political intention in a way that keeps some institutions too big and too interconnected to fail.
Admittedly, many of the benefits from these reforms will be long-term in nature. So with that in mind I also propose the following initiatives that will benefit the economy in the short-term without ignoring the long-term structural problems we still face:
- The Joint Special Committee in Congress should put together a deficit-cutting package that exceeds the $1.2 trillion minimum and turns the upward slope of government spending down, instead of just slowing the rate of spending over the next 10 years. This would provide at least a small amount of confidence to some private sector companies.
- In addition to keeping the payroll tax holiday for employees, we should extend it to employers, and pay for it with savings from tax code and entitlement reform.
- Recognizing that the unemployment insurance system is integrally woven into the social fabric of American society, we should realize that it is not going away in the near future. However, to make the spending programs more efficient, I recommend that unemployment checks be converted into vouchers given directly to companies that hire workers to keep them on payrolls for at least three months.
- I propose curbing the powers of the National Labor Relations Board to block manufacturing from relocating—69 percent of manufacturers recently reported that the NLRB has slowed their efforts to expand and create more jobs. This will not bring back millions of manufacturing jobs, but it will slow the rate at which manufacturing jobs disappear in America.
- We should remove restrictions that prevent employers from hiring on their terms, such as the minimum wage and the lending cap to small businesses placed on credit unions.
- I encourage Congress to repeal regulations like the Sarbanes-Oxley accounting rules that keep small companies from going public and thus hindering their ability to expand and create jobs.
- Finally, I encourage the states to move quickly in phasing out occupational licensing requirements, many of which simply serve to create high barriers to entry for entrepreneurs.
These are all matters that my administration and Congress should address in a timely manner, setting aside our political differences.
I hope that we can work together as a nation to harness the creativity of the American people. It is my belief that the more we as a nation recognize the true roots of today’s economic problems, the better we will be able to ground our expectations in reality and meet the challenge of adjusting to a new economy in the 21st century.
Now, are you ready for some football?
Thank you, and God bless America.