Five Economic Goals Hidden in Obama’s Rhetoric

What does President Barack Obama have in mind for a second term? Critics say his lackluster address at last week's Democratic National Convention failed to set out a vision.

That's not entirely true. Asking voters to "rally around a set of goals" for the country, Obama set several economic objectives -- increasing exports, clean energy production and manufacturing employment -- and others that were political, such as reducing the deficit and bolstering national security and education.

Let's look more closely at these presidential promises.

EXPORTS

"We can help big factories and small businesses double their exports, and if we choose this path, we can create a million new manufacturing jobs in the next four years," he said.

This is hardly a fresh ambition. It first appeared in his 2010 State of the Union address, in which he was clearer about the details of this goal. "So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support 2 million jobs in America," he said. Noting progress, Obama has mentioned the target since then in the 2011 and 2012 editions of his annual speech to the Congress.

In 2010, the U.S. seemed likely to meet the goal whether his policy proposals helped or not. The previous decade had seen a doubling of exports, as soaring global growth pushed up foreign demand for U.S. products, and by that January global trade volumes had just bottomed out and were well-positioned to rebound swiftly.

But buoyant export growth was not to be. Weakness in Europe and developing economies has slowed their purchases since 2011. As of June 2012, exports had grown 28.7 percent over their January 2010 level. If the same average rate of growth continues through January 2015 -- and that is a sunny assumption -- exports will have grown 65.6 percent since Obama announced his doubling target. Barring economic or political surprise, this goal will go unfulfilled.

Obama has relatively little power to drive export growth in his own right, anyway. It's not quite as if he can go on Amazon.com and change the shipping addresses of purchases to send U.S. goods overseas.

What scarce sway he does have comes from several different policy channels. Though the Federal Reserve makes monetary policy independently, significant easing could depreciate the dollar. In the short run, that would make "Made in America" a more attractive buy for foreign customers.

The State Department also could choose to press for new free trade agreements, given recent congressional approvals of treaties with South Korea, Panama and Columbia. By reducing exterior barriers to trade, such agreements could provide a gradual boost to the level of exports. And there's a relatively small fiscal channel: the U.S. Export-Import Bank, which finances trade and whose charter Obama has pushed to renew. Proposals to subsidize manufacturing, which would increase exports, have also appeared in recent Obama speeches.

A more overlooked strategy involves improving trade infrastructure -- roads, bridges, seaports and airports. There's new evidence suggesting that the ensuing speed gains for production could significantly improve the competitiveness of exports.

MANUFACTURING

President Obama promised to create 1 million manufacturing jobs by 2016. After decades of manufacturing job losses, this might seem like a stretch -- but, surprisingly, it's doable. Manufacturing has been one of the positive surprises of the recovery, with year-over-year job creation running at roughly 215,000 positions since 2011. It's not that much of a leap to figure that this economy, without further acceleration of growth, can generate one million more new jobs in manufacturing.

Nevertheless, Obama has a solid portfolio of policy ideas on manufacturing job creation. Additional fiscal stimulus would certainly do the trick by generating demand for domestic goods, as would further monetary easing by the Fed. Narrower incentives for manufacturing-led growth, such as the special corporate tax break and full expensing for capital investments Obama proposed in his 2012 State of the Union, would also lift manufacturing employment.

ENERGY

"If you choose this path, we can cut our oil imports in half by 2020 and support more than 600,000 new jobs in natural gas alone," Obama told the convention-goers.

This pledge comes on the heels of major progress in domestic energy driven by private-sector exploration and publicly-financed research -- hydraulic fracturing and techniques for more cost-efficient extraction of "tight oil" trapped in shale. Obama even mentioned the advances in his 2012 State of the Union. (A high price of oil is also slowly reducing the quantity of oil demanded.) The U.S. imported 7.9 million barrels of oil per day in the last week of August, 42 percent less than the high of 13.6 million barrels per day in November 2005.

The U.S., therefore, is already close to halving its net oil imports -- halving them again would bring them down to just under 4 million barrels per day, to lows not seen since 1986. The U.S. Energy Information Administration currently forecasts net oil imports to fall another 20 percent in BTU terms in its baseline scenario. Even if we see higher global oil prices, slower economic growth or faster technological progress,  a further halving of net oil imports seems within reach.

Obama's employment goal for the natural gas industry is not unreasonable either. Employment in utilities, after a decades-long contraction, has begun to grow again. So has employment in natural gas distribution. Both, however, are not growing nearly fast enough to generate 600,000 jobs in any reasonable time frame.

That may soon begin to change. According to America's Natural Gas Alliance, an industry group, natural gas production will support 1.4 million more jobs in 2035 than in 2010. The Bureau of Labor Statistics, however, is less sanguine -- they expect only 11,200 more jobs by 2020 in oil and gas.

To cut oil imports and increase domestic energy employment, Obama can continue his initiatives to free up public land and waters for exploration, drilling and fracking, which he hawked in his 2010 State of the Union. There remains considerable room for further expansion, however, as the total number of acres of public land under lease has been in decline since the start of his administration, as have been applications for onshore drilling permits. And crude oil production on public land has been stagnant at 3.9 quadrillion BTU on average. The aftershocks of the president's ban on deepwater drilling in 2010 are still being felt, with huge swaths of the Gulf of Mexico under lease or in planning but without any approved permits for exploration, drilling or production.

Reductions in oil demand will also drive down net imports. To that end, public initiatives that encourage efficiency will likely reduce consumption, assuming that demand in quantity terms do not fully rebound. Here there are many options for public policy -- some of which, such as tightening fuel economy standards, the Obama administration is already pursuing. Another possibility, likely to be as effective as it is politically infeasible, would be a hike in the federal gasoline tax of 18.4 cents per gallon or indexing the excise tax to inflation.

The president could encourage efficiency and alternative energy development more directly as well. The stimulus package, for example, contained tax credits to improve insulation in homes, expanded energy research and development financing, and subsidized solar and wind development. These measures will all tend to reduce demand for oil and net imports over the long run.

EDUCATION

"Help me recruit 100,000 math and science teachers within 10 years," the President asked in his Charlotte address. "Help give 2 million workers the chance to learn skills at their community college that will lead directly to a job. Help us work with colleges and universities to cut in half the growth of tuition costs over the next 10 years."

None of these goals are new. Obama suggested the increase in math and science teachers in his 2011 State of the Union, and he suggested the goals for job-skills training and the tuition growth reduction in his 2012 address.

Hiring 100,000 math and science teachers over a decade seems likely to occur without changes in policy, given continued growth in educational services. The U.S. employs 3.3 million education professionals -- that includes teachers at all levels and their support staffs -- as of August 2012. There has been relatively steady growth for more than a decade, running at roughly 65,000 net gains in employment per year. Given that a reasonable percentage of new hires are in math and science, perhaps 20 percent of the total, this goal is already on track.

If the president wanted to further shift educational employment into math and science instruction, he has levers to do so. He could create incentives in current federal educational financing, as the Department of Education has an annual budget of $68 billion. He could also inaugurate new programs along the lines of to his Race to the Top competition, making available federal aid to finance the expansion of math and science instruction.

Cutting tuition is more challenging, both because such costs have been rising 4 percent above the rate of core inflation since the 1980s, and because the president has few policy options that do not present direct trade-offs with quality and quantity of education at public universities, which receive direct financing from the states and indirect federal money through student loans.

The president could push for a bill to cap the growth of federal student loans, similar to how Medicare and Medicaid costs are contained, but that would be politically unpalatable. Or he could expand federal loan programs, but that would drive up the marginal cost of education.

DEFICIT

"You can choose a future where we reduce our deficit without sticking it to the middle class," Obama said. "Independent experts say that my plan would cut our deficits by $4 trillion."

Here the president is in relatively direct control, proposing budgets and working with Congress, and he has put forth deficit-reduction plans in every State of the Union speech.

The options are straightforward: increase revenue and/or cut expenditures. Republicans are categorically opposed to revenue increases. Cutting spending inevitably means cutting public services or purchases -- there is no free lunch. Proposals for spending cuts include reductions in defense spending, entitlements spending and non-defense discretionary spending.

All in all, Obama's pitch for a second term is modest -- no moon bases, a la former Speaker of the House Newt Gingrich. His goals in exports, manufacturing, energy, education and the deficit are not exactly pie-in-the-sky, as many seem on track already, and he does have specific policy options to back up the vague promises of his convention address.

(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)

To contact the editor responsible for this article:

Tobin Harshaw at 1+212-205-0367 or tharshaw@bloomberg.net .

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