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Obama's Budget Priorities: Can We Compete with China and India?

February 13, 2012, 4:00 PM
Levmore1

President Obama has unveiled his proposed 10-year budget today, and while there’s nothing particularly shocking included for those who have been following the ongoing debate between the White House and the Republican-controlled House of Representatives, the new economic plan for the United States offers a window into the moderate-leftist worldview about the future of the United States. We’re facing fierce economic competition from China, India, and other developing nations, and what we do in the next 10 years could determine the ultimate fate of the country.

The opening sentences of the official summary set up the framing for the budget and for the future success of the United States:

We now face a make-or-break moment for the middle class and those trying to reach it. After decades of eroding middle-class security as those at the very top saw their incomes rise as never before and after a historic recession that plunged our economy into a crisis from which we are still fighting to recover, it is time to construct an economy that is built to last.

Concerns about the erosion of the middle class are expected to shape President Obama’s reelection bid, and will be tied in to the general structure of the US economy and what we can do to maintain a competitive edge in a globalized economy. There are five primary planks in the new budget that seek to achieve prosperity in the short- and long-term, while combating ballooning debt:

-Job Creation: extension the payroll tax cut, investment in transportation infrastructure, modernization of schools and the hiring of more teachers, tax credits aimed to stoke small-business hiring and investment

-Education: $850 million more for the Race to the Top program, reforms in teacher compensation and accountability, increased college affordability through reforms, enhanced support for community colleges

-Innovation and Manufacturing: increased spending on research and development, tax incentives for manufacturers who create jobs in America, electric vehicle, clean energy, and energy efficiency initiatives

-Infrastructure: modernizing transportation infrastructure, including support for inter-city rail projects, creation of a National Infrastructure Bank, building out a next-generation wireless broadband network

-Budgetary Reform: expiration of the Bush tax cuts, institution of the Buffett rule for high-income households, $1.5 billion in deficit reduction, fees on TARP recipients, Medicare savings, $487 billion in defense cuts

All of these measures, more or less, are in line with the general post-war American political priorities, albeit with a left-leaning bent toward an increased governmental role in ensuring the competitiveness of our workforce through the subsidization of US-based jobs, education, and infrastructure projects. But is this enough to compete against the radically different economies of India and China?

Much concern has already been expressed during the Republican presidential primary about our relationship with China, and to a lesser extent, India. Both countries are exhibiting unprecedented economic growth that has upended decades of academic economic thinking about the optimal capitalist democratic state.

Here’s Floating University professor Saul Levmore of the University of Chicago explaining the innovations of the Chinese and Indian systems:


While the United States certainly has many long-standing advantages, China and India are rapidly bringing up the rear. A 2011 report from the International Monetary Fund, in fact, posits that China will become the world’s biggest economy by 2016, overtaking the US. Brett Arends, a reporter for Marketwatch, responds to the hypothetical development:

Anyone who's a historian will tell you, the lesson of history is you cannot stay number one when you're economy is number two. It just don't work. Britain tried it, other countries have tried it in history. Everything follows, ultimately, from economics.

The solutions proffered today by the White House seek to stave off this existential threats to American prosperity by improving education, funneling more students into college, building out our infrastructure, and encouraging the protection of US businesses against cut-rate competition in developing nations.

But will this be enough? We’re already producing far more college students than we can employ, and bolstering the middle class through increased manufacturing would seem to be a dream of the past. What can we learn from China and India that we can incorporate without sacrificing vital elements of our national character?

Visit The Floating University to learn more about our approach to disrupting higher education, or check out Saul Levmore's eSeminar "Do Not Pass Go, Do Not Collect $200: Monopolies as an Introduction to Economics."

 

Obama's Budget Priorities: ...

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