Five Keys to President Obama’s State of the Union

As President Obama prepares to deliver his 2011 State of the Union address, the American people have already delivered their own verdict: The state of the union is not good. A Gallup survey released yesterday revealed declining public satisfaction on virtually every front—not only about the ability of individuals to get ahead through hard work (the core of the American Dream), but also about our system of government, the size and power of the federal government, and the size and influence of major corporations. Most of these declines have been a long time in the making. For example, satisfaction with the role of the federal government declined from 50 to 41 percent during George W. Bush’s two terms in office. (It now stands and 31 percent.) Similarly, dissatisfaction with the role of major corporations declined under Bush from 48 to 35 percent before falling to 29 percent under Obama.

Along with increased discontent has come a loss of confidence in the future. Astonishingly, a plurality of Americans now believe that China, which has a per capita GDP roughly one-tenth the size of ours, is the world’s leading economic power. Americans have come to understand that the old economic order, in which the United States effortlessly dominated the world economy and workers with a high school education could earn a secure middle-class living, has vanished and will not return. And they have not heard a compelling story about how the economy will become successful in the future. In the minds of most Americans, the emergency policies of the past two years may have cleared the patient’s airways and stopped the bleeding, but they are not enough to set the patient on the road to recovery. They don’t want to spend the rest of the decade in the economic ICU, and they’re looking to Dr. Obama to tell them how they can get out.

Not surprisingly, every survey shows that the economy—and in particular jobs—ranks as Americans’ number one concern, with fiscal issues—spending, deficits, and debt—coming in second. This generates the central substantive problem that Obama will have to address: How are we to combine the imperatives of job creation and spending restraint? Conceptually, this is an easy issue for Republicans: If you believe that public spending is a drag on the private sector, then the policies that reduce spending will also accelerate growth and jobs.

If you’re a Democrat, matters are more complicated. You probably believe that increased public spending boosts overall economic activity when private demand is depressed, as it remains today, a year and a half after the (technical) end of the Great Recession. If so, you’ll think that the time to begin spending restraint is after economic activity accelerates and unemployment substantially declines. And even if you’re not a dyed-in-the-wool Keynesian, you believe that certain public investments—in education, basic research, and infrastructure, for example—are essential to long-term growth. Unless you are prepared to couple calls for increased investment with cuts in other areas, or other measures that increase revenues, you’ll end up increasing spending and exacerbating the deficit.

Keeping that in mind, I’ve compiled a list of the key rhetorical choices that Obama must make in the economic portion of his address. How he deals with each of these will, in many ways, set tone for the rest of his term—and determine whether Americans believe he is up to the task of addressing their top concerns.

Obama’s theory of the economy. What kind of economic success story will he offer? Will he argue, for example, that we must replace the consumption-led model of economic growth that has dominated recent decades with a model based on investment, production, and exports? If so, how will he frame the argument for public investment against the Republican claim that it is a rhetorical cloak for more government spending? And how will he advance the arguments for trade treaties against the Democratic belief that the global playing field is tilted against American workers? Just days after his summit with China’s president, how tough a line will he articulate against what many Americans believe are unfair Chinese trade tactics, including outright currency manipulation?

Concrete steps to spur job growth. Obama must be tempted to keep the case for economic growth and job generation on the level of generalities—framing it as a common aspiration which unites us. At this point, however, most Americans are in a “show me” mood. So how will the president narrow the gap between aspiration and reality? What will he say that makes listeners believe that he has a specific and credible plan for creating jobs?

Obama’s attitude toward corporate America. The president has talked often about the $2 trillion sitting on the sidelines in corporate coffers. What will he say to persuade the private sector that the time has come to start investing and hiring again? If he offers new incentives to alter their calculation, how can he avoid triggering renewed resentment from those Americans (the vast majority, in fact) who believe that corporate wrongdoers have received unjustified bailouts while average workers have gotten only pink slips and pay cuts?

His plan to fix the deficit. Obama has said—repeatedly—that we can’t postpone hard budget choices indefinitely. When the Senate balked at creating a bipartisan fiscal commission through legislation, he created one through executive order. Against the odds, his commission offered a plan that five out of six senators, including the unlikely duo of Dick Durbin and Tom Coburn—were able to endorse. Will the president endorse that plan as a framework for starting the discussion? Will he get behind comprehensive tax reform—individual as well as corporate—an idea that is gaining momentum across party lines? And will he go beyond restraining discretionary spending to open up the conversation about Social Security and Medicare that everyone knows we must have at some point? Complicating Obama’s choice is the fact that the American people have not been prepared for any of this: They endorse spending cuts in general while rejecting most of the specifics. Will the president take the lead in a long-overdue process of public education?

Where he plans to compromise. Beyond the economy, there is an overriding political reality with which Obama must reckon: The people are sick of the political polarization that has intensified in recent decades. His post-November moves toward conciliation in tone and substance have been well received and have helped spark his surprising rise in public approval. Surely, he wants to continue the “president of all the people” stance that has served him well since the 2010 midterm election. But at the same time, he disagrees with Republicans about the best course for the economy. As we saw with the tax deal, a politics of conciliation means giving ground on fundamentals. So where will he draw the line between matters that can be compromised and those that can’t?

Bill Clinton faced this question in 1995. He found an answer that worked substantively for the economy and politically for himself. Now Obama’s choice is even more difficult—in part because the economy is in a much deeper hole, and in part because he is a more orthodox liberal than Clinton ever was. If he moves too far toward compromise, he’ll betray his core convictions and risk his credibility with core supporters; not far enough, and he’ll trigger two years of pitched partisan warfare that would leave economic policy stuck in neutral, and the electorate in a sour and volatile mood. This 2011 State of the Union address will show whether Obama can bring together policy and politics in the way that renews Americans’ faith in the future.