Nice Speech, but now Obama must act

The president left no doubt that tackling unemployment was a priority. Success on this would also facilitate the medium-term budget reform that he is targeting.

Mr. Obama must make clear jobs creation can no longer depend simply on stimulus, federal government hiring, and the hope that previous drivers (such as construction) will return.

This article was originally published on www.ft.com on January 26, 2011.

President Barack Obama’s State of the Union speech on Tuesday focused on the economy. Its message will resonate well among Americans and America’s allies – and it should. But to deliver his vision, he needs to move quickly.

His speech confirms the serious migration of jobs creation to the top of the policy agenda – following quickly after the renaming of Mr Obama’s recovery advisory board as a Council on Jobs and Competitiveness, and his appointment of Jeffrey Immelt, chief executive of GE, as its chair.

The president left no doubt that tackling unemployment was a priority. Success on this would also facilitate the medium-term budget reform that he is targeting. He outlined a range of public investment goals too – from increasing access to high-speed rail and close-to-universal internet access to new investments in “biomedical research, information technology, and especially clean energy technology”

These are important developments, and urgently needed. US under- and unemployment, in particular, is stuck at 17 per cent. Labour market participation is declining. A total of 6.4m people are long-term unemployed. The teen unemployment rate is 25 per cent. Forget unemployment as a “lagging indicator”: this level and composition of unemployment has “leading” traits that demand firm and urgent action.

Having recognised and signalled his priorities – a critical step of any successful mid-course policy correction – Mr Obama must now translate his announcements into action. As a start, this requires three quick steps in the coming weeks.

First, the administration should set a detailed timeline for translating deliberations into initiatives. Mr Obama’s elegant speech would be followed with specifics, thus abandoning the piecemeal approach of recent months for a comprehensive reform package.

Second, a “jobs tsar” should immediately be appointed inside the cabinet. This figure would work with Mr Immelt’s new council. Absent that, co-ordination problems and turf wars will frustrate the implementation of measures that cut across many agencies and other government silos.

Third, Mr Obama must make clear jobs creation can no longer depend simply on stimulus, federal government hiring, and the hope that previous drivers (such as construction) will return. The president’s education, innovation and skills-driven revamping of the labour market must be put centre-stage, as part of an overall push to reorientate the economy in favour of more dynamic, globally oriented sectors.

If followed by timely actions, this speech can mark an important moment in America’s ability to adapt to new realities. It can also address the growing gap between the haves and have-nots while helping to overcome the legacy of years of excessive leverage, uncontrolled credit creation and unrealistic debt entitlements. But to paraphrase the president, if America is to “win the future” his fine words must now be backed with action. It is indeed time “to do big things”.

This material contains the opinions of the author but not necessarily those of PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. This material was reprinted with permission of The Financial Times. Date of original publication January 26, 2011.