The State of the Union address offers an insight into the budget and policy battles that animate the coming year.  I watched it with my 6^th grade daughter, who despite growing annoyance with the frequency of applause, was surprised by the number of times the president mentioned the future.  I was struck by the way President Obama got it exactly right in identifying our long term problems – innovation and productivity.

In past speeches, he spent much time talking about how to slice our economic pie differently.  In this speech he talked about making it bigger.  If he follows through with action, this is a monumental shift in focus that his friends on the left will find discomfiting. 

Like the president, I am very optimistic about the future.  Also, like many others of our generation, I am inspired by the things a good and solvent government can do.  I recognize that many things we collectively want won’t always emerge in free markets.  Our federal government can do and does embark on great ventures.  I am not alarmed by big dreams, even if I am skeptical. 

What worried me most about the president’s speech was not what he said, but what he didn’t. The president’s budget proposals barely recognized the straightened federal budget circumstances that will continue to afflict the nation for at least a decade.  A budget freeze and earmark ban is both simpleminded and trivial.  These things divert our attention from the real heart of the matter.  It’s like putting a nice coat of wax on a Vega.  While everyone is appalled at the size of the federal budget, that’s not really the problem.  The real predicament is the scope of government.   If we can get a handle on what government should do, and more importantly, should not do, we can begin to right our budget.  Even so, it will take big cuts for a long time.  Immediately we are going to have to make significant cuts to such things as Medicaid and engineer long-term adjustments to Medicare and Social Security.  Most of us are going to have to be more responsible for our own futures. It will mean far less defense spending on big ticket items and a network of high speed rail will have to be left for another generation; we cannot now afford it.  

We also have to fix our tax system – income, corporate and payroll.  For some, that will mean more taxes; for most, less.  We will have to have a tax system that has low rates on a broad base – the real definition of fairness. 

Sadly, though his diagnosis was right, the president’s prescription offers too much of the wrong medicine.  This year alone, our government increased our debt by $9,200 for every household.  Talk of innovation and productivity is encouraging, but the best way to out-innovate the world in the short run is to simply get out of the way of entrepreneurs, innovators and producers.  We have to start by reducing their debt burden.