Business, Finance & Economics

Obama jobs speech: Psychology v. economics


President Barack Obama addresses a Joint Session of the United States Congress on Sept. 8, 2011, on Capitol Hill in Washington, DC. Obama Thursday unveiled a $447 billion jobs plan which he said would "jolt" the stalled economy at an 'urgent' time for a nation facing a deep economic and political crisis.


Jim Watson

Forget the politics of President Barack Obama's jobs speech Thursday night before a joint session of Congress.

Forget the way many Republicans failed to clap and how Democrats thundered their approval.

Forget John Boehner's measured response or what Rick Perry, Mitt Romney and Michele Bachmann might have to say about it.

You can even — almost — forget the economics of the plan, a fairly modest mix of tax breaks, unemployment insurance benefits and infrastructure spending which President Obama summed up in a single paragraph:

"The purpose of the American Jobs Act is simple: to put more people back to work and more money in the pockets of those who are working. It will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business."

Republican leaders attacked the jobs plan as mere words.

"This hardly merited a nationally televised address to a joint session of Congress. More speeches, more words and more hot air from this president is not what America is looking for," Republican National Committee Chairman Reince Priebus said.

But forget that line of criticism, too.

That's because, in economics, words matter.

They're important because — for all the retrograde statistical analysis, supply-and-demand charts and myriad equations economists love to throw around — economics comes down to one simple idea: confidence.

Do people have confidence they will find and keep a job? Do business leaders have confidence to hire new workers? Do Americans have confidence that their political system can allieviate their real economic problems? Do investors have confidence that U.S. leaders can put America's long-term financial picture into reasonable order?

If the answer is no, then consumers won't part with their money — a terminal flaw in a country where two-thirds of economic activity comes from consumer spending.

If the answer is no, then businesses won't hire, which matters because people tend not to spend when they don't have paychecks.

And if global investors don't believe America can pay its bills they will demand higher rates for U.S. Treasuries, which further damages consumer and business confidence.

Confidence is what matters most to the U.S. economy. It holds the entire thing together.

That's precisely the ethereal ground Obama covered. He crafted a straightforward, logical and sometimes inspirational speech that was one-part Maynard Keynes and three-parts Sigmund Freud.

The Psychologist-in-Chief needed to restore confidence in the economy and in our broken political system, while addressing America's uncertain place in a rapidly-shifting global economic order.

And he had to do it in the face of a rapidly deteriorating economy, amid his own plummeting approval ratings and in the glare and blare of a presidential election.

His approach was simple: Obama laid out the basics of the plan, then poured on the psychology — a mix of gentle challenges and soaring rhetoric that he has made his trademark.

To Americans worried about their immediate economic futures, President Obama-Freud was calm, collected and full of confidence-inspiring details (though he was woefully light on how to pay for it). Most importantly, he forcefully reassured his uneasy audience that government will not let them down:

"What we can’t do — what I will not do — is let this economic crisis be used as an excuse to wipe out the basic protections that Americans have counted on for decades."

To Republican lawmakers, he repeated the mantra "pass this bill" no less than eight times, a remarkable feat in a speech that lasted 34 minutes. But, ever mindful of psychology, the demand came with some sugar:

"There should be nothing controversial about this piece of legislation. Everything in here is the kind of proposal that’s been supported by both Democrats and Republicans, including many who sit here tonight."

To America's wealthiest, he urged them to pay more in taxes. But he did so by using the advice of one of the country's richest people:

"While most people in this country struggle to make ends meet, a few of the most affluent citizens and most profitable corporations enjoy tax breaks and loopholes that nobody else gets. Right now, Warren Buffett pays a lower tax rate than his secretary, an outrage he has asked us to fix. We need a tax code where everyone gets a fair shake and where everybody pays their fair share. And by the way, I believe the vast majority of wealthy Americans and CEOs are willing to do just that if it helps the economy grow and gets our fiscal house in order."

To business leaders and workers, he offered this pep talk:

"Yes, we are rugged individualists. Yes, we are strong and self-reliant. And it has been the drive and initiative of our workers and entrepreneurs that has made this economy the engine and the envy of the world."

And in an attempt to show his entire audience that we've been here before, he recalled America's darkest hour:

"We all remember Abraham Lincoln as the leader who saved our Union. Founder of the Republican Party. But in the middle of a civil war he was also a leader who looked to the future — a Republican President who mobilized government to build the Transcontinental Railroad, launch the National Academy of Sciences, set up the first land grant colleges. And leaders of both parties have followed the example he set."

Taken together, the speech was designed to calm nerves, urge action and — yet again — convince Americans to come together as a country and as a people, regardless of our political differences.

Will it work?

The odds are certainly against it. The proposals aren't likely to thrill proponents of Keynesenian economics who argue for more aggressive government spending to stimulate consumer demand. And, clearly, America's structural economic problems run deep. The political divisions may be even deeper. Moreover, Obama's call to action comes very late to the more than 14 million Americans now out of work.

But better late than never.

And by focusing on the key ingredient of confidence, President Obama has taken the first step in helping to restore at least some measure of strength in the world's largest economy. Even — and especially — if the message is just all in our heads.