McCombs Professors Weigh in on the 2013 State of the Union Address

 

Takeaway

  • Labor force training in high schools could make Americans more competitive in the global market
  • Obama calls for solutions to climate change but stops short of proposing a tax on carbon
  • Existing policies make it difficult for skilled legal immigrants to work in the U.S.

In his annual State of the Union Address this week, President Barack Obama urged lawmakers to move beyond partisan budget showdowns and work together to maintain the momentum of a rebounding economy.

The speech touched on topics including job growth, health care reform, labor force training, gun control, and immigration. Obama emphasized the importance of supply-side economic policies — measures that strengthen the country’s domestic labor force and economic output — as key components of stable growth.

He pledged to form partnerships between private businesses and the departments of Defense and Energy to create a national network of high-tech manufacturing hubs. He called on Congress to raise the federal minimum wage to $9 an hour and to tie it to the cost of living going forward. And he proposed new programs to support domestic infrastructure upgrades and spur trade with the European Union.

For further insight on the business and economic implications of the ideas outlined in the address, we asked McCombs faculty to provide their thoughts on Obama’s State of the Union proposals.

Economic Growth

“Obama is addressing the need for supply-side policies so the U.S. can grow within the context of open global competition. And that’s a very big positive.

“I’m very happy to see [Obama and Democrats] have turned their attention to issues of economic growth, and that has to do with integrating labor force training into the high school curriculum. It’s extremely positive; Germany’s been doing it for decades, and it works.

“[But] they’re still stonewalling taxing and spending, such that we’re guaranteed to have an unfundable deficit. Basically he’s not giving an inch on spending.”

— Professor Lewis Spellman, Department of Finance

Energy

“Obama made pretty strong statements about climate change and the need to transition toward lower carbon energy.  However, I did not see much in the way of specifics. At the start of the speech he mentioned that he is not proposing anything that would increase the budget deficit.  I would have liked to have seen him propose a carbon tax, with the proceeds being used to fund the types of infrastructure investments that he mentioned in the speech.”

— Professor Sheridan Titman, Department of Finance; executive director of the Energy Management and Innovation Center; president of the American Finance Association

Immigration and the Business Community

“The President, in his State of the Union, noted that ‘Our economy is stronger when we harness the talents and ingenuity of striving, hopeful immigrants. And right now, leaders from the business, labor, law enforcement, and faith communities all agree that the time has come to pass comprehensive immigration reform.’

“The talents and ingenuity of newcomers to America are realized in studies of immigrant entrepreneurship. My most recent research with Tod Hamilton, of Princeton University, shows that first- and second-generation immigrants have greater odds of being self-employed than the native born. In regions where high tech plays a significant role in the economy, the immigrant effect is significant. In Silicon Valley, as early as the 1990s, more than 23 percent of high-tech companies had CEOs who were immigrants. A comprehensive study funded by venture capitalists on the impact of immigrant entrepreneurs shows that over the last 15 years, immigrants started 25 percent of U.S. public companies, and represent some of the most innovative companies in America.  Examples of companies include Sun Microsystems, eBay, Google, and WebEx Communication.”

— Professor John S. Butler, Department of Management; director of the Herb Kelleher Center for Entrepreneurship

Meanwhile, Senior Lecturer of Management John Doggett says the most pressing immigration problem is losing highly skilled — and legal — foreign workers who don’t have an easy path to citizenship, and that the problem isn’t being addressed with enough urgency:

“The President only briefly touched on our biggest immigration crisis: speeding the path to citizenship of those who are here legally.

“I have taught hundreds of international students who wanted to stay and work in America after graduation. Many couldn’t do so because they couldn’t get companies to interview them. Companies told them that they just didn’t want to deal with the expense and the hassle of our immigration quota system. These are some of the best and brightest minds in the world. 

“One of my former Chinese students is being forced to leave America this month because she can’t find a company that wants to go through the headache of trying to get a work permit for her. I have had other international students whose wives or husbands were doctors or engineers. The spouse couldn’t get a work permit because their spouse is a student. That makes no sense.”

— Senior Lecturer John Doggett, Department of Management

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Concrete Proposals

The State of the Union Address is often criticized for being heavy on rhetoric but light on specific policy objectives. To help trim the fat, below is a condensed list of some of the more concrete proposals President Obama mentioned in his speech.

  • Raise the federal minimum wage to $9 an hour — and tie it to the cost of living going forward
  • Reduce taxpayer subsidies to prescription drug companies
  • Establish three high-tech manufacturing hubs through partnerships between businesses and the departments of Defense and Energy — and ask Congress to help create 15 more after that
  • Use public oil and gas revenues to fund an Energy Security Trust that will drive new research to reduce reliance on oil (especially in transportation)
  • Create a Fix-It-First program to address urgently needed repairs to bridges, roads, and other infrastructure
  • Create a Partnership to Rebuild America program that attracts private capital to make upgrades that support business: ports, pipelines, schools, etc.
  • Support bill to allow homeowners to refinance mortgages at present rates, which could save them about $3,000 each year
  • Make high-quality preschool available to every child
  • Establish system to reward high schools that partner with colleges and employers, and create classes that focus on science, technology, engineering and math
  • Ask Congress to change the Higher Education Act so that “affordability and value are included in determining which colleges receive certain types of federal aid”
  • Remove “the financial deterrents to marriage” (such as the marriage tax penalty) for low-income couples
  • Continue the drawdown of troops in Afghanistan and end the war there by the end of 2014
  • Work with Russia to further reduce nuclear arsenals
  • Issued an executive order to create new standards and information systems to strengthen cyber defense
  • Work to create a comprehensive Transatlantic Trade and Investment Partnership with the European Union to promote free trade across the Atlantic and spur domestic job growth
  • Form a nonpartisan commission to address delays and other problems with the voting process

Faculty in this Article

John Doggett

Senior Lecturer McCombs School of Business

John N. Doggett is a senior lecturer in the Department of Management. He received his B.A. from Claremont Men’s College, his J.D. from Yale Law...

John Doggett teaches in the Texas Executive Education program, featuring open enrollment, custom and certificate classes for executives and organization teams.

Lew Spellman

Professor, Department of Finance McCombs School of Business, The University of Texas at Austin

Lewis Spellman received his BBA and MBA from the University of Michigan and his MA and Ph.D. from Stanford University. His research interests include...

Sheridan Titman

Walter W. McAllister Centennial Chair in Financial Services McCombs School of Business

Sheridan Titman is a professor of finance at The University of Texas at Austin and a research associate of the National Bureau of Economic...

About The Author

Rob Heidrick

Writer, McCombs School of Business

Born and raised in Austin, writer Rob Heidrick has spent several years as a contributor and editor at local magazines and community newspapers. He...

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