Obama's State of the Union Address Was Short on Math

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President Obama's State of the Union Address on Tuesday night was high on rhetoric but short on math.

As with most Obama speeches, it was beautifully delivered. However, even where I agreed with the ideas, I couldn't quell a nagging suspicion that the numbers simply didn't add up, and indeed likely missed by a lot.

And let's face it, some of the ideas in the speech were just plain bad.

The Bad Ideas

At the top of the list was the proposed increase in the minimum wage to $9 an hour. It's sounds nice, but reality is a different story.

Economists pretty much universally agree that high minimum wages have the opposite effect: They increase the ranks of the unemployed.

Now admittedly, $9 an hour isn't likely to increase unemployment in costly areas like New York City or coastal California. New York City Comptroller John Liu has already sent me an e-mail complaining that $9/hour is equivalent to only $4.97 in his overpriced city.

But it will certainly push up joblessness in St. Louis, Houston or Cleveland, where living costs are lower than the national average.

Of course, Houston can look after itself with high oil prices and a decent local economy, but you can't tell me that a $9 an hour minimum wage won't increase unemployment in Cleveland or even St. Louis, let alone in rural areas.

It's a bad idea, which fortunately won't get far in a Republican Congress. But it wasn't the only one.

His insistence that Congress must immediately address global warming, and his threat to do so by executive action if it didn't, are deeply controversial.

The reality is that global warming "investments" have already cost U.S. taxpayers billions upon billions, with very little to show for it. In fact, the extra $12 billion of wind power subsidies tucked into the "fiscal cliff" deal-- one fifth of the first year's tax increases-- is just the latest example.

What's more, when you look at the Antarctic as well as the Arctic, and at the global climate as a whole, there's evidence that global warming has at least paused since 1998, and that even by 2100 it will be limited to the 1-2 degrees Celsius change that we can easily handle without subjecting ourselves to infinitely costly command-and-control policies.

The Good Ideas

But the President's speech wasn't all bad.

President Obama made a considerable amount of sense on education. In fact, Education Secretary Arne Duncan is one of his most impressive Cabinet members.

He does want to increase access to early childhood education, the problem with which is that studies seem to show the current program does little good.

Coming from a different education system, my main beef with U.S. K-12 education is how slowly it goes in the early years.

Without any special coaching in Great Britain, I started calculus at 11. Here in the states, my son didn't get to it until he was undergoing the tribulations of college applications as a high school senior - far too late for him to have the reliable grasp of it necessary in a modern economy.

However, Obama's better education idea is to combine high school education with community colleges, so that those graduating high school have a vocational qualification that makes them useful to local employers.

If nothing else, that makes them employable if their dream job flames out. I now regret that my son, educated within 200 yards of the giant Tyson's Corner mall, didn't get a qualification in Mall Management - something a modern economy can always use!

The Fuzzy Math

The main problem I have with the speech, however, is the cost of his proposals.

Obama said specifically "Nothing I'm proposing tonight should increase our deficit by a single dime."

Then during the speech he proposed:

  • 15 manufacturing innovation institutes;
  • An Energy Security Trust for new energy research;
  • A "fix it first" program for more infrastructure spending;
  • A big expansion of early childhood education;
  • Incentives to companies to hire the long-term unemployed;
  • Tax credits to businesses that invest in low-income couples;
  • New spending on combating cyber-attacks.

That's without counting initiatives like the minimum wage and more regulation that provide a drag on the economy but don't cost the government any money directly.

Put politely, his numbers don't add up.

Eager to find something to like, The Financial Times declared that a potential U.S.-EU free trade agreement was "the centerpiece" of the speech. But that's nonsense - it was in one sentence out of over 6,000 words. But it's still a good idea.

In the end, it was a well-delivered speech, and there were some good ideas in it I hadn't heard before.

But let's face it, the government's overall current priority must be to reduce the budget deficit, and Obama's package as a whole was a hindrance, not a help to that objective.

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About the Author

Martin Hutchinson is the Global Investing Specialist for Money Map Press. A British-born investment banker with more than 30 years of experience, Martin has worked on both Wall Street and Fleet Street. He is now the editor of the Permanent Wealth Investor, where he focuses on "Alpha Bulldog" stocks that pay high dividends covered by earnings. In his Merchant Banker Alert, Martin uncovers the fastest-growing companies in the fastest-growing economies and brings those ideas back home to you. For more information about these services, call our VIP Services group at 855.509.6600 or 410.622.3004.

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