As President Obama's first one hundred days draw to a close, the media has had no shortage of pundits attempting to draw parallels between his achievements and those of Franklin Roosevelt and Lyndon Johnson, America's two most successful liberal presidents. Much of this, of course, is mere hype - while Obama's first one hundred days have certainly been unusually productive (for which he deserves credit), the final assessment on what he has achieved and its success or failure will have to wait until after his first term as president is over (since most presidents are far more productive in their first four years than they are in their second).
Facts such as these are not popular among newscasters, since in our era of instant gratification, few want to hear that their right to judge will have to wait a few years. That said, they can take some small comfort in at least trying to ascertain WHAT Obama hopes to accomplish by the end of his first term, even if they will have to wait for the expiration of four years before being able to determine his success in actually accomplishing it. By comparing his overall agenda with the legacies of Franklin Roosevelt and Lyndon Johnson, the media (and through them the American people) can at least come to a better understanding of what role Obama will give himself in history, should the general course of future events proceed according to his wishes. That is why I have provided below a list of the major domestic policies brought to fruition by Franklin Roosevelt and Lyndon Johnson, followed by a speech delivered by President Obama two weeks ago that illustrates what he hopes to do to join them. Incidentally, it is worth noting that while Franklin Roosevelt memorably dubbed his agenda "The New Deal" and Lyndon Johnson called his "The Great Society", Obama has for most of his presidency been either unwilling or unable to affix to his goals a catchy moniker - that is, until now. "The New Foundation" appears to be the term he has used, and let us all hope it is one associated with success and a long-term left-wing shift in America's ideological paradigm.
Franklin Roosevelt (1933-1945)'s "New Deal":
1933:
- Civilian Conservation Corps (CCC) – Provided jobs for single males on conservation projects.
- Federal Emergency Relief Act (FERA) – Helped states to provide aid for the unemployed.
- Civil Works Administration (CWA) – Provided work in federal jobs.
- Public Works Administration (PWA) – Created jobs on government projects that increased worker buying power and stimulated the economy.
- Emergency Banking Relief Act (EBRA) – Regulated bank transactions in credit, currency, gold and silver, and foreign exchange.
- Federal Deposit Insurance Corporation (FDIC) – Protected bank deposits up to $5000.
- National Recovery Administration (NRA) – Established codes of fair competition and voluntary guidelines for minimum wage and 40-hour workweek.
- Agricultural Adjustment Administration (AAA) – Aided farmers and regulated crop production.
- Tennessee Valley Authority (TVA) – Developed the resources of the Tennessee Valley.
- Home Owners Loan Corporation (HOLC) – Loaned money at low interest to homeowners who could not meet mortgage payments.
1934:
- Securities and Exchange Commission (SEC) – Supervised the country’s Stock Commission Exchanges and eliminated dishonest practices.
- Federal Housing Administration (FHA) – Insured loans for building and repairing homes.
1935:
- Works Progress Administration (WPA) – Quickly created as many jobs as possible – from construction projects to symphony orchestras.
- National Youth Administration (NYA) – Provided job training for unemployed youth and part-time jobs for needy students.
- Banking Act of 1935 – Created a seven-member board to regulate the nation’s money supply and the interest rates on loans.
- Rural Electrification Administration (REA) – Provided cheap electricity for isolated rural areas.
- National Labor Relations Act (Wagner Act of 1935) – Defined “unfair labor practices” and established a National Labor Relations Board (NLRB) to settle disputes between employers and employees.
- Social Security Act – Provided a pension for retired workers and their spouses and aided people with disabilities.
1937:
- United States Housing Authority (USHA) – Provided federal loans for a national home improvement program.
1938:
- Food, Drug, and Cosmetic Act – Required manufacturers to list ingredients in food, drugs, and cosmetic products.
- Fair Labor Standards Act – Established a minimum hourly wage and a maximum number of hours in the workweek for the entire country. Prohibited children under the age of 16 from working in factories.
I want to thank the superb history textbook used by my girlfriend's teenage sister for this list. I wish I could recall its name.
Lyndon Johnson's (1963-1969) "Great Society":
1964:
- Tax Reduction Act – Cut corporate and individual taxes to stimulate growth.
- Economic Opportunity Act – Created Job Corps, VISTA, Project Head Start, and other programs to fight “war on poverty”.
- Civil Rights Act of 1964 – Outlawed discrimination in public accommodations, housing, and jobs; increased federal power to prosecute civil rights abuses.
- Twenty-fourth Amendment – Abolished the poll tax in federal elections.
1965:
- Medical Care Act – Established Medicare and Medicaid programs.
- Appalachian Regional Development Act – Targeted aid for highways, health centers, and resource development in that economically depressed area.
- Omnibus Housing Act – Provided money for low-income housing.
- Department of Housing and Urban Development – Formed to administer federal housing programs.
- Elementary and Secondary Education Act – Directed money to schools for textbooks, library materials, and special education.
- Higher Education Act – Funded scholarships and low-interest loans for college students.
- National Foundation on the Arts and the Humanities – Created to financially assist painters, musicians, actors, and others in the arts.
- Voting Rights Act of 1965 – Ended the practice of requiring voters to pass literacy tests and permitted the federal government to monitor voter registration.
- Immigration Act – Ended national-origins quotas established in 1924.
- Wilderness Preservation Act – Set aside over 9 million acres for national forest lands.
- Water Quality Act – Required states to clean up their rivers.
- Clear Air Act Amendment – Directed the federal government to establish emission standards for new motor vehicles.
1966:
- Demonstration Cities and Metropolitan Area Redevelopment Act – Funded slum rebuilding, mass transit, and other improvements for selected “model cities”.
- Truth in Packaging Act – Set standards for labeling consumer products.
- National Traffic and Motor Vehicle Safety Act – Set federal safety standards for the auto and tire industries.
- Highway Safety Act – Required states to set up highway safety programs.
- Department of Transportation – Created to deal with national air, rail, and highway transportation.
1967:
- Corporation for Public Broadcasting – Formed to fund education TV and radio broadcasting.
- Air Quality Act – Set federal air pollution guidelines and extended federal enforcement power.
Speech outlining Barack Obama's "New Foundation":
I want to step back for a moment and explain our strategy as clearly as I can. This is going to be prose, and not poetry. I want to talk about what we've done, why we've done it, and what we have left to do. I want to update you on the progress we've made, but I also want to be honest about the pitfalls that may still lie ahead.
Most of all, I want every American to know that each action we take and each policy we pursue is driven by a larger vision of America's future -- a future where sustained economic growth creates good jobs and rising incomes; a future where prosperity is fueled not by excessive debt, or reckless speculation, or fleeting profits, but is instead built by skilled, productive workers, by sound investments that will spread opportunity at home and allow this nation to lead the world in the technologies and the innovation and discoveries that will shape the 21st century. That's the America I see. That's the America that Georgetown is preparing so many of you for. That is the future that I know that we can have.
Now, to understand how we get there, we first need to understand how we got here.
Recessions are not uncommon. Markets and economies naturally ebb and flow, as we've seen many times in our history. But this recession is different. This recession was not caused by a normal downturn in the business cycle. It was caused by a perfect storm of irresponsibility and poor decision-making that stretched from Wall Street to Washington to Main Street.
As has been widely reported, it started in the housing market. During the course of the decade, the formula for buying a house changed: Instead of saving their pennies to buy their dream house, many Americans found that suddenly they could take out loans that by traditional standards their incomes just could not support. Others were tricked into signing these subprime loans by lenders who were trying to make a quick profit. The reason these loans were so readily available was that Wall Street saw big profits to be made. Investment banks would buy and package together these questionable mortgages into securities, arguing that by pooling the mortgages the risks had somehow been reduced. And credit agencies that are supposed to help investors determine the soundness of various investments stamped the securities with their safest rating when they should have been labeled "Buyer Beware."
No one really knew what the actual value of these securities were, no one fully understood what the risks were. But since the housing market was booming and prices were rising, banks and investors just kept buying and selling them, always passing off the risk to someone else for a greater profit without having to take any of the ultimate responsibility. Banks took on more debt than they could handle.
The government-chartered companies Fannie Mae and Freddie Mac, whose traditional mandate was to help support traditional mortgages, decided to get in on the action by buying and holding billions of dollars of these securities. AIG, the biggest insurer in the world that had a very traditional insurance business that was very profitable, decided to make profits suddenly by selling billions of dollars of complicated financial instruments that supposedly insured these securities. Everybody was making record profits -- except the wealth created was real only on paper. And as the bubble grew, there was almost no accountability or oversight from anyone in Washington.
Then the housing bubble burst. Home prices fell. People began to default on their subprime mortgages. And the value of all those loans and securities plummeted. Banks and investors couldn't find anyone to buy them. Greed gave way to fear. Investors pulled their money out of the market. Large financial institutions that didn't have enough money on hand to pay off all their obligations collapsed. Other banks held on tight to their money and simply stopped lending.
Now, this is when the crisis spread from Wall Street to Main Street. After all, the ability to get a loan is how you finance the purchase of everything from a home to a car to, as you all know very well, a college education. It's how stores stock their shelves, and farms buy equipment, and businesses make payroll. So when banks stopped lending money, businesses started laying off workers. When laid-off workers had less money to spend, businesses were forced to lay off even more workers. When people couldn't get a car loan, a bad situation at the auto companies became even worse. When people couldn't get home loans, the crisis in the housing market only deepened. Because the infected securities were being traded worldwide and other nations also had weak regulations, this recession soon became global. And when other nations can't afford to buy our goods, it slows our economy even further.
So this is the situation, the downward spiral that we confronted on the day that we took office. So our most urgent task has been to clear away the wreckage, repair the immediate damage to the economy, and do everything we can to prevent a larger collapse. And since the problems we face are all working off each other to feed a vicious economic downturn, we've had no choice but to attack all fronts of our economic crisis simultaneously.
The first step was to fight a severe shortage of demand in the economy. So the Federal Reserve did this by dramatically lowering interest rates last year in order to boost investment. My administration and Congress boosted demand by passing the largest recovery plan in our nation's history. It's a plan that's already in the process of saving or creating 3.5 million jobs over the next two years. It's putting money directly into people's pockets with a tax cut for 95 percent of working families that's now showing up in paychecks across America. And to cushion the blow of this recession, we also provided extended unemployment benefits and continued health care coverage to Americans who've lost their jobs through no fault of their own.
Now, you will recall that some argued this recovery plan is a case of irresponsible government spending, that it's somehow to blame for our long-term deficit projections, and that the federal government should be cutting instead of increasing spending right now. So I want to tackle this argument head on.
To begin with, economists on both the left and the right agree that the last thing a government should do in the middle of a recession is to cut back on spending. You see, when this recession began, many families sat around the kitchen table and tried to figure out where they could cut back. And so have many businesses. And this is a completely reasonable and understandable reaction. But if everybody -- if everybody -- if every family in America, if every business in America cuts back all at once, then no one is spending any money, which means there are no customers, which means there are more layoffs, which means the economy gets even worse. That's why the government has to step in and temporarily boost spending in order to stimulate demand. That's exactly what we're doing right now.
Second, I absolutely agree that our long-term deficit is a major problem that we have to fix. But the fact is that this recovery plan represents only a tiny fraction of that long-term deficit. As I'll discuss in a moment, the key to dealing with our long-term deficit and our national debt is to get a handle on out-of-control health care costs -- not to stand idly by as the economy goes into free fall.
So the recovery plan has been the first step in confronting this economic crisis. The second step has been to heal our financial system so that credit is once again flowing to the businesses and families who rely on it.
The heart of this financial crisis is that too many banks and other financial institutions simply stopped lending money. In a climate of fear, banks were unable to replace their losses from some of those bad mortgages by raising new capital on their own, and they were unwilling to lend the money they did have because they were afraid that no one would pay it back. It's for this reason that the last administration used what they called the Troubled Asset Relief Program, or TARP, to provide these banks with temporary financial assistance in order to get them lending again.
Now, I understand that TARP is not popular, and I have to say that I don't agree with some of the ways the TARP program was managed, but I do agree with the broader rationale that we must provide banks with the capital and the confidence necessary to start lending again. That's the purpose of the stress tests that will soon tell us how much additional capital will be needed to support lending at our largest banks. Ideally, these needs will be met by private investors who are willing to put in money to these banks. But where that's not possible, and banks require substantial additional resources from the government, then we will hold accountable those who are responsible, we'll force the necessary adjustments, we'll provide the support to clean up those bank balance sheets, and we will assure the continuity of a strong and viable institution that can serve our people and our economy.
Of course, there are some who differ with our approach. On the one hand, there are some who argue that the government should stand back and simply let these banks fail -- especially since in many cases it was their bad decisions that helped create the crisis in the first place. But whether we like it or not, history has shown repeatedly that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months -- years of low growth, years of low job creation, years of low investment, all of which cost these nations far more than a course of bold, upfront action.
And although there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of to banks -- one of my most frequent questions in the letters that I get from constituents is, "Where's my bailout?" -- and I understand the sentiment. It makes sense intuitively, and morally it makes sense, but the truth is that a dollar of capital in a bank can actually result in $8 or $10 of loans to families and businesses. So that's a multiplier effect that can ultimately lead to a faster pace of economic growth. That's why we have to fix the banks.
Now, on the other hand, there have been some who don't dispute that we need to shore up the banking system, but they suggest that we've been too timid in how we go about it. This is essentially the nationalization argument that some of you may have heard. And the argument says that the federal government should have already preemptively stepped in and taken over major financial institutions the way that the FDIC currently intervenes in smaller banks, and that our failure, my administration's failure to do so is yet another example of Washington coddling Wall Street -- "Why aren't you tougher on the banks?"
So let me be clear: The reason we have not taken this step has nothing to do with any ideological or political judgment we've made about government involvement in banks. It's certainly not because of any concern we have for the management and shareholders whose actions helped to cause this mess. Rather, it's because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it's more likely to undermine than create confidence.
Governments should practice the same principle as doctors: First, do no harm. So rest assured -- we will do whatever is necessary to get credit flowing again, but we will do so in ways that minimize risks to taxpayers and to the broader economy. To that end, in addition to the program to provide capital to the banks, we've launched a plan that will pair government resources with private investment in order to clear away the old loans and securities -- the so-called toxic assets -- that are also preventing our banks from lending money.
Now, what we've also learned during this crisis is that our banks aren't the only institutions affected by these toxic assets that are clogging the financial system. AIG, for example, is not a bank, it's an insurance company, as I mentioned -- and yet because it chose to insure billions of dollars worth of risky assets, essentially creating a hedge fund on top of an insurance company, its failure could threaten the entire financial system and freeze lending even more. And that's why, as frustrating as it is -- and I promise you, nobody is more frustrated than me with AIG -- (laughter) -- I promise -- we had to provide support for AIG, because the entire system, as fragile as it is, could be profoundly endangered if AIG went into a liquidation bankruptcy.
It's also why we need new legal authority so that we have the power to intervene in such financial institutions, the same way that bankruptcy courts currently do with businesses that hit hard times but don't pose systemic risks -- and that way we can restructure these businesses in an orderly way that doesn't induce panic in the financial system -- and, by the way, will allow us to restructure inappropriate bonus contracts without creating a perception the government can just change compensation rules on a whim.
This is also why we're moving aggressively to unfreeze markets and jumpstart lending outside the banking system, where more than half of all lending in America actually takes place. To do this, we've started a program that will increase guarantees for small business loans and unlock the market for auto loans and student loans. And to stabilize the housing market, we've launched a plan that will save up to four million responsible homeowners from foreclosure and help many millions more to refinance their homes.
In a few weeks, we will also reassess the state of Chrysler and General Motors, two companies with an important place in our history and a large footprint in our economy -- but two companies that have also fallen on hard times.
Late last year, the companies were given transitional loans by the previous administration to tide them over as they worked to develop viable business plans. Unfortunately, the plans they developed fell short, so we've given them some additional time to work these complex issues through. And by the way, we owed that not to the executives whose bad bets contributed to the weakening of their companies, but to the hundreds of thousands of workers whose livelihoods hang in the balance -- entire towns, entire communities, entire states are profoundly impacted by what happens in the auto industry.
Now, it is our fervent hope that in the coming weeks, Chrysler will find a viable partner and GM will develop a business plan that will put it on a path to profitability without endless support from American taxpayer. In the meantime, we're taking steps to spur demand for American cars and provide relief for autoworkers and their communities. And we will continue to reaffirm this nation's commitment to a 21st-century American auto industry that creates new jobs and builds the fuel-efficient cars and trucks that will carry us toward a clean-energy future.
Finally, to coordinate a global response to this global recession, I went to the meeting of the G20 nations in London the other week. Each nation has undertaken significant stimulus to spur demand. All agreed to pursue tougher regulatory reforms. We also agreed to triple the lending capacity of the International Monetary Fund -- which, as many of you know, is an international financial institution supported by all the major economies -- so that they can provide direct assistance to developing nations and vulnerable populations. That's not just charity; because America's success depends on whether other nations have the ability to buy what we sell, it's important that we pay attention to these emerging markets.
We pledged to avoid the trade barriers and protectionism that hurts us all in the end. And we decided to meet again in the fall to gauge our progress and take additional steps if necessary.
So that's where we've been, that's what we've done in the last three months. All of these actions -- the Recovery Act, the bank capitalization program, the housing plan, the strengthening of the non-bank credit market, the auto plan, and our work at the G20 -- all have been necessary pieces of the recovery puzzle. They've been designed to increase aggregate demand to get credit flowing again to families and businesses and to help families and businesses ride out the storm. And taken together, these actions are starting to generate signs of economic progress.
Because of our recovery plan, schools and police departments have cancelled planned layoffs; clean energy companies and construction companies are re-hiring workers to build everything from energy-efficient windows to new roads and highways. Our housing plan has helped lead to a spike in the number of homeowners who are taking advantage of historically-low mortgage rates by refinancing, which is like putting a $2,000 tax cut in your pocket. Our program to support the market for auto loans and student loans has started to unfreeze this market and securitize more of this lending in the last few weeks. And small businesses are seeing a jump in loan activity for the first time in months.
Now, this is all welcome and encouraging news. It does not mean the hard times are over; 2009 will continue to be a difficult year for America's economy, and obviously, most difficult for those who've lost their jobs. The severity of this recession will cause more job loss, more foreclosures, and more pain before it ends. The market will continue to rise and fall. Credit is still not flowing nearly as easily as it should. The process for restructuring AIG and the auto companies will involve difficult and sometimes unpopular choices; we are not finished yet on that front. And all of this means that there's much more work to be done. But all of this also means that you can continue to expect an unrelenting, unyielding, day-by-day effort from this administration to fight for economic recovery on all fronts.
But even as we continue to clear away the wreckage and address the immediate crisis, it is my firm belief that our next task, beginning now, is to make sure such a crisis never happens again. (Applause.) Even as we clean up balance sheets and get credit flowing again, even as people start spending and businesses start hiring -- all that's going to happen -- we have to realize that we cannot go back to the bubble-and-bust economy that led us to this point.
It is simply not sustainable to have a 21st-century financial system that is governed by 20th-century rules and regulations that allowed the recklessness of a few to threaten the entire economy. It is not sustainable to have an economy where in one year, 40 percent of our corporate profits came from a financial sector that was based on inflated home prices, maxed-out credit cards, over-leveraged banks and overvalued assets. It's not sustainable to have an economy where the incomes of the top 1 percent has skyrocketed while the typical working household has seen their incomes decline by nearly $2,000. That's just not a sustainable model for long-term prosperity.
For even as too many were out there chasing ever-bigger bonuses and short-term profits over the last decade, we continued to neglect the long-term threats to our prosperity: the crushing burden that the rising cost of health care is placing on families and businesses; the failure of our education system to prepare our workers for a new age; the progress that other nations are making on clean energy industries and technologies while we -- we remain addicted to foreign oil; the growing debt that we're passing on to our children. Even after we emerge from the current recession, these challenges will still represent major obstacles that stand in the way of our success in the 21st century. So we've got a lot of work to do.
Now, there's a parable at the end of the Sermon on the Mount that tells the story of two men. The first built his house on a pile of sand, and it was soon destroyed when a storm hit. But the second is known as the wise man, for when "the rain descended, and the floods came, and the winds blew, and beat upon that house, it fell not: for it was founded upon a rock."
It was founded upon a rock. We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock. We must lay a new foundation for growth and prosperity -- a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad.
It's a foundation built upon five pillars that will grow our economy and make this new century another American century: Number one, new rules for Wall Street that will reward drive and innovation, not reckless risk-taking -- (applause); number two, new investments in education that will make our workforce more skilled and competitive -- (applause); number three, new investments in renewable energy and technology that will create new jobs and new industries -- (applause); number four, new investments in health care that will cut costs for families and businesses; and number five, new savings in our federal budget that will bring down the debt for future generations. (Applause.)
That's the new foundation we must build. That's our house built upon a rock. That must be our future -- and my administration's policies are designed to achieve that future.
Let me talk about each of these steps in turn. The first step we will take to build this foundation is to reform the outdated rules and regulations that allowed this crisis to happen in the first place. It is time to lay down tough new rules of the road for Wall Street to ensure that we never find ourselves here again. Just as after the Great Depression new rules were designed for banks to avoid the kind of reckless speculation that helped to create the depression, so we've got to make adaptations to our current set of rules: create rules that punish shortcuts and abuse; rules that tie someone's pay to their actual job performance --- a novel concept -- (laughter); rules that protect typical American families when they buy a home, get a credit card or invest in a 401(k). So we've already begun to work with Congress to shape this comprehensive new regulatory framework -- and I expect a bill to arrive on my desk for my signature before the year is out.
The second pillar of this new foundation is an education system that finally prepares our workers for a 21st century economy. You know, in the 20th century, the G.I. Bill helped send a generation to college. For decades we led the world in educational attainment, and as a consequence we led the world in economic growth. But in this new economy, we've come to trail the world's leaders in graduation rates, in educational achievement, in the production of scientists and engineers. That's why we have set a goal that will greatly enhance our ability to compete for the high-wage, high-tech jobs of the 21st century: By 2020, America will once again have the highest proportion of college graduates in the world. That is the goal that we have set and we intend to do. (Applause.)
To meet that goal, we have to start early. So we've already dramatically expanded early childhood education. (Applause.) We are investing in innovative programs that have proven to help schools meet high standards and close achievement gaps. We're creating new rewards that tie teachers' performance and new pathways for advancement. And I've asked every American to commit to at least one year or more of higher education or career training, and we have provided tax credits to make a college education more affordable for every American, even those who attend Georgetown. (Applause.)
And, by the way, one of the changes that I would like to see -- and I'm going to be talking about this in weeks to come -- is once again seeing our best and our brightest commit themselves to making things -- engineers, scientists, innovators. (Applause.) For so long, we have placed at the top of our pinnacle folks who can manipulate numbers and engage in complex financial calculations. And that's good, we need some of that. (Laughter.) But you know what we can really use is some more scientists and some more engineers, who are building and making things that we can export to other countries. (Applause.)
Now, the third pillar of this new foundation is to harness the renewable energy that can create millions of new jobs and new industries. We all know that the country that harnesses this new energy source will lead the 21st century. Yet we've allowed other countries to outpace us on this race to the future. I don't know about you, but I do not accept a future where the jobs and industries of tomorrow take root beyond our borders. I think it's time for America to lead again.
So the investments we made in the Recovery Act will double this nation's supply of renewable energy in the next three years. (Applause.) And we are putting Americans to work making our homes and buildings more efficient so that we can save billions on our energy bills and grow our economy at the same time.
Now, the only though that we can truly spark the transformation that's need is through a gradual, market-based cap on carbon pollution, so that clean energy is the profitable kind of energy. (Applause.)
There are those who've argued that we shouldn't attempt, we shouldn't even be thinking, we shouldn't even be talking about such a transition until the economy recovers. And they are right that we have to take into account the costs of transition. Transitioning to a clean energy economy will not be easy. But we can no longer delay putting a framework for a clean energy economy in place. That needs to be done now. (Applause.)
If businesses and entrepreneurs know today that we are closing this carbon pollution loophole, they'll start investing in clean energy now. And pretty soon, we'll see more companies constructing solar panels, and workers building wind turbines, and car companies manufacturing fuel-efficient cars. Investors will put some money into a new energy technology, and a small business will open to start selling it. That's how we can grow this economy, enhance our security, and protect our planet at the same time.
Now, the fourth pillar of our new foundation is a 21st century health care system where families, businesses and government budgets aren't dragged down by skyrocketing insurance premiums. (Applause.) One and a half million Americans could lose their homes this year just because of a medical crisis. Major American corporations are struggling to compete with their foreign counterparts. Small businesses are closing their doors. We can't allow the cost of health care to continue strangling our economy.
And that's why our Recovery Act will invest in electronic health records with strict privacy standards that can save money and lives and reduce medical error. That's why we've made the largest investment ever in preventive care, because that's one of the best ways to keep costs under control. And included in the budgets that just passed Congress is an historic commitment to reform that will finally make quality health care affordable for every American. (Applause.) So I'm looking forward in the next few months to working with both parties in Congress to make this reform a reality. We can get this done -- and we have to get it done.
Now, fixing our health care system will -- will require resources; it's not going to be free. But in my budget we've made a commitment to fully pay for reform without increasing the deficit, and we've identified specific savings that will make the health care system more efficient and reduce costs for us all.
In fact, we've undertaken an unprecedented effort to find this kind of savings in every corner of the budget, because the final pillar in building our new foundation is restoring fiscal discipline once this economy recovers.
Already we've identified $2 trillion dollars in deficit reductions over the next decade. We need to do more, but we've already done that. We've announced procurement reform that will greatly reduce no-bid contracts and save the government $40 billion. We need to do more, but that's an important start. Secretary Gates recently announced a courageous set of reforms that go right at the hundreds of billions of dollars in waste and cost overruns that have bloated our defense budget without making America safer. We need to do more, but that proposal by Secretary Gates is right on target. We will end education programs that don't work, we will root out waste and fraud and abuse in our Medicare program.
Altogether, this budget will reduce discretionary spending for domestic programs as a share of the economy by more than 10 percent over the next decade to the lowest level we've seen since we began keeping records nearly half a century ago. And as we continue to go through the federal budget line by line, we will be announcing additional savings, secured by eliminating and consolidating programs that we don't need so we can make room for the things that we do need.
That's what we're doing now. Of course, I realize that for some, this isn't enough. I know there's a criticism out there that my administration has been spending with reckless abandon, pushing a liberal social agenda while mortgaging our children's future. You've heard the argument.
Well, let me make three points. First, as I said earlier, the worst thing that we could do in a recession this severe is to try to cut government spending at the same time as families and businesses around the world are cutting back on their spending. So as serious as our deficit and debt problems are -- and they are very serious -- major efforts to deal with them have to focus on the medium and long-term budget picture, not on the short-term. And that's exactly what we've done.
Second, in tackling the deficit issue, we simply cannot sacrifice the long-term investments that we so desperately need to generate long-term prosperity. That's the argument that some critics have made: Well, you're proposing health care reform, you shouldn't be doing that; you're proposing education investments, you shouldn't be doing that, that adds to the deficit.
Look, just as a cash-strapped family may cut back on all kinds of luxuries, but will still insist on spending money to get their children through college, will refuse to have their kids drop out of college and go to work in some fast-food place, even though that might bring in some income in the short-term, because they're thinking about the long term -- so we as a country have to make current choices with an eye for the future. (Applause.)
If we don't invest now in renewable energy, if we don't invest now in a skilled workforce, if we don't invest now in a more affordable health care system, this economy simply won't grow at the pace it needs to in two or five or 10 years down the road. If we don't lay this new foundation now, it won't be long before we're right back where we are today. And I can assure you that chronically slow growth will not help our long-term budget situation. That's the second point.
Third point, the problem with our deficit and debt is not new. It has been building dramatically over the past eight years, largely because big tax cuts combined with increased spending on two wars and the increased costs of government health care programs have pushed it ever upwards. This structural gap in our budget, between the amount of money that's coming in and the amount of money that's going out, will only get worse as the baby boomers age, and will in fact lead us down an unsustainable path.
But let's not kid ourselves and suggest that we can solve this problem by trimming a few earmarks or cutting the budget for the National Endowment for the Arts. That's just not true. (Applause.) Along with defense and interest on the national debt, the biggest cost drivers in our budget are entitlement programs like Medicare, Medicaid, and Social Security -- all of which get more and more expensive every year. So if we want to get serious about fiscal discipline, and I do, then we're going to not only have to trim waste out of our discretionary budget -- which we've already begun -- we will also have to get serious about entitlement reform.
Now, nothing will be more important to this goal than passing health care reform that brings down costs across the system, including in Medicare and Medicaid. (Applause.) So make no mistake, health care reform is entitlement reform. That's not just my opinion -- that was the conclusion of a wide range of participants at the Fiscal Responsibility Summit that we held at the White House in February. And that's one of the reasons why I firmly believe we need to get health care reform done this year. (Applause.)
Once we tackle rising health care costs, we must also work to put Social Security on firmer footing. It's time for both parties to come together and find a way to keep the promise of a sound retirement for future generations. And we should restore a sense of fairness and balance to our tax code including by shutting down corporate loopholes and ensuring that everyone pays what they owe. (Applause.)
All of these efforts will require tough choices. All these efforts will require compromise. But the difficulties can't serve as an excuse for inaction -- not anymore -- which brings me to one final point I'd like to make today. I've talked a lot about the fundamental weakness in our economy that led us to this day of reckoning. But we also arrived here because of a fundamental weakness in our political system.
For too long, too many in Washington put off hard decisions for some other time on some other day. There's been a tendency to spend a lot of time scoring political points instead of rolling up sleeves to solve real problems.
There's also an impatience that characterizes this town -- an attention span that has only grown shorter with the 24-hour news cycle that insists on instant gratification in the form of immediate results or higher poll numbers. When a crisis hits, there's all too often a lurch from shock to trance, with everyone responding to the tempest of the moment until the furor has died down, the media coverage has moved on to something else, instead of confronting the major challenges that will shape our future in a sustained and focused way.
This can't be one of those times. The challenges are too great. The stakes are too high. I know how difficult it is for members of Congress in both parties to grapple with some of the big decisions we face right now. I'd love if these problems were coming at us one at a time instead of five or six at a time. It's more than most Congresses and most Presidents have to deal with in a lifetime.
But we have been called to govern in extraordinary times. And that requires an extraordinary sense of responsibility -- to ourselves, to the men and women who sent us here, to the many generations whose lives will be affected for good or for ill because of what we do here.
There is no doubt that times are still tough. By no means are we out of the woods just yet. But from where we stand, for the very first time, we're beginning to see glimmers of hope. And beyond that, way off in the distance, we can see a vision of an America's future that is far different than our troubled economic past. It's an America teeming with new industry and commerce, humming with new energy and discoveries that light the world once more -- a place where anyone from anywhere with a good idea or the will to work can live the dream they've heard so much about.
That is the house upon the rock -- proud, sturdy, unwavering in the face of the greatest storms. And we will not finish it in one year. We will not finish it in many. But if we use this moment to lay that new foundation, if we come together and begin the hard work of rebuilding, if we persist and persevere against the disappointments and setbacks that will surely lie ahead, then I have no doubt that this house will stand and the dream of our founders will live on in our time.
Conclusion:
American political history is marked by periods in which various ideological assumptions dominate our civic life. These include:
- The Foundational Era, which begin with the signing of the Declaration of Independence and ended at the inauguration of George Washington, and which lasted from 1776 to 1789;
- The Washingtonian Era (also known as the Federalist Era), which was defined by the economic, social, and international policies of George Washington and John Adams, all of which were instrumental in creating the modern American federal government, and which lasted from the beginning of Washington's presidency in 1789 to the election of Thomas Jefferson in 1801 (while the election itself occurred in 1800, Jefferson did not officially win until Congress resolved his dispute with Aaron Burr in the following year);
- The Jeffersonian Era, which was defined by the economic, social, and international policies of the Thomas Jefferson presidency (1801-1809) and which lasted from 1801 to 1828, the year of Andrew Jackson's election;
- The Jacksonian Era, which was defined by the economic, social, and international policies of the Andrew Jackson presidency (1829-1837) and which lasted from Jackson's first election in 1828 to the passage of the Kansas-Nebraska Act in 1854;
- The Civil War Era, which was defined by the heightening internal strife over the spread of slavery and lasted from the passage of the Kansas-Nebraska act in 1854 to the end of the Civil War in 1865;
- The First Gilded Age, which was defined by the economic, social, and international policies put forth by the Republican-majority in Congress over a then-supine presidency and which lasted from the end of the Civil War in 1865 to the ascension of Theodore Roosevelt to the presidency (due to William McKinley's assassination) in 1901;
- The First Roosevelt Era (or Progressive Era), which was defined by the economic, social, and international policies of the Theodore Roosevelt presidency (1901-1909) and which lasted from the inauguration of Theodore Roosevelt 1901 to the rejection of progressivism at the polls brought about Warren Harding's defeat of James Cox in the election of 1920;
- The Second Gilded Age, which was defined by the economic, social, and international policies advocated by Warren Harding his 1920 presidential campaign and which lasted from his election in 1920 to the first beginning of Franklin Roosevelt's presidency in 1933 (I do not begin with Roosevelt's election in 1932 as the left-wing views that defined the subsequent period were brought into American political life not by his first campaign for the presidency, which avoided substantive ideological declarations, but rather by the first hundred days of his presidency in the following year;
- The Second Roosevelt Era (or New Deal Era), which was defined by the economic, social, and international policies of the Franklin Roosevelt presidency (1933-1945) and which lasted from Roosevelt's first inauguration in 1933 to the beginning of Ronald Reagan's presidency in 1981 (although Reagan articulated conservative views during his 1980 presidential campaign, his election was primarily a rejection of Jimmy Carter and was hardly an embrace of Reagan's conservatism, as he failed to win even 51% of the popular vote and wound up splitting much of the anti-Carter vote with a liberal third-party candidate named John Anderson);
- The Third Gilded Age (or Age of Conservatism), which was defined by the economic, social, and international policies of the Ronald Reagan presidency (1981-1989) and which lasted from the inauguration of Ronald Reagan in 1981 to the rejection of the Reagan legacy and concurrent election of Barack Obama in 2008.
Just as a quick review:
- The Foundational Era (1776-1789), brought on by the signing of the Declaration of Independence
- The Washingtonian Era (1789-1801), brought on by the presidency of George Washington
- The Jeffersonian Era (1801-1828), brought by the election and presidency of Thomas Jefferson
- The Jacksonian Era (1828-1854), brought on by the election and presidency of Andrew Jackson
- The Civil War Era (1854-1865), brought on by the passage of the Kansas-Nebraska Act
- The First Gilded Age (1865-1901), brought on by the end of the Civil War and subsequent weakening of the presidency
- The First Roosevelt Era (1901-1920), brought on by the presidency of Theodore Roosevelt
- The Second Gilded Age (1920-1933), brought on by the election of Warren Harding
- The Second Roosevelt Era (1933-1981), brought on by the presidency of Franklin Roosevelt
- The Third Gilded Age (1981-2008), brought on by the presidency of Ronald Reagan
There are two features of our nation's political life that become immediately apparent when looking at these different periods of our history:
1) Our nation's ideological/political paradigm shifts back and forth between left-wing periods (the Jeffersonian Era, the Jacksonian Era, the Civil War Era, the First Roosevelt Era, and the Second Roosevelt Era) and right-wing periods (the three Gilded Ages). While the specific ideas advocated by the prevailing left-wing and right-wing groups of these different time periods have varied, the core assumptions they hold about the relationship that ought to exist between our government and its people, our government and other countries, and in general what principles are government should fight for (which is more often than not in direct correspondence with which constituency groups the dominant party happens to serve) have remained essentially the same.
2) Shifts in the nation's ideological/political paradigm are usually brought about the rise of a successful "game changing" president to power, who by dint of his leadership skills and actual achievements redefines the next few decades in accordance with his personal vision, so much so that subsequent presidents (as well as other political leaders) wind up defining their campaigns and careers by the benchmark he has set (with a majority party usually putting up politicians who embrace it and the minority party usually putting up politicians who oppose it).
This larger historical framework is important because it helps us understand that, after twenty-eight years of the Third Gilded Age/Reagan Era, America's ideo-political paradigm is now shifting back to the left, thanks to the policies of the nascent administration of President Barack Obama. Whether this shift will be permanent and beneficial to the country depends entirely on how successful Obama is in bringing to life the vision he articulated in his April 14th speech.
Lyndon Johnson's (1963-1969) "Great Society":
1964:
- Tax Reduction Act – Cut corporate and individual taxes to stimulate growth.
- Economic Opportunity Act – Created Job Corps, VISTA, Project Head Start, and other programs to fight “war on poverty”.
- Civil Rights Act of 1964 – Outlawed discrimination in public accommodations, housing, and jobs; increased federal power to prosecute civil rights abuses.
- Twenty-fourth Amendment – Abolished the poll tax in federal elections.
1965:
- Medical Care Act – Established Medicare and Medicaid programs.
- Appalachian Regional Development Act – Targeted aid for highways, health centers, and resource development in that economically depressed area.
- Omnibus Housing Act – Provided money for low-income housing.
- Department of Housing and Urban Development – Formed to administer federal housing programs.
- Elementary and Secondary Education Act – Directed money to schools for textbooks, library materials, and special education.
- Higher Education Act – Funded scholarships and low-interest loans for college students.
- National Foundation on the Arts and the Humanities – Created to financially assist painters, musicians, actors, and others in the arts.
- Voting Rights Act of 1965 – Ended the practice of requiring voters to pass literacy tests and permitted the federal government to monitor voter registration.
- Immigration Act – Ended national-origins quotas established in 1924.
- Wilderness Preservation Act – Set aside over 9 million acres for national forest lands.
- Water Quality Act – Required states to clean up their rivers.
- Clear Air Act Amendment – Directed the federal government to establish emission standards for new motor vehicles.
1966:
- Demonstration Cities and Metropolitan Area Redevelopment Act – Funded slum rebuilding, mass transit, and other improvements for selected “model cities”.
- Truth in Packaging Act – Set standards for labeling consumer products.
- National Traffic and Motor Vehicle Safety Act – Set federal safety standards for the auto and tire industries.
- Highway Safety Act – Required states to set up highway safety programs.
- Department of Transportation – Created to deal with national air, rail, and highway transportation.
1967:
- Corporation for Public Broadcasting – Formed to fund education TV and radio broadcasting.
- Air Quality Act – Set federal air pollution guidelines and extended federal enforcement power.
I want to thank the superb history textbook used by my girlfriend's teenage sister for this list. I wish I could recall its name.
Speech outlining Barack Obama's "New Foundation":
I want to step back for a moment and explain our strategy as clearly as I can. This is going to be prose, and not poetry. I want to talk about what we've done, why we've done it, and what we have left to do. I want to update you on the progress we've made, but I also want to be honest about the pitfalls that may still lie ahead.
Most of all, I want every American to know that each action we take and each policy we pursue is driven by a larger vision of America's future -- a future where sustained economic growth creates good jobs and rising incomes; a future where prosperity is fueled not by excessive debt, or reckless speculation, or fleeting profits, but is instead built by skilled, productive workers, by sound investments that will spread opportunity at home and allow this nation to lead the world in the technologies and the innovation and discoveries that will shape the 21st century. That's the America I see. That's the America that Georgetown is preparing so many of you for. That is the future that I know that we can have.
Now, to understand how we get there, we first need to understand how we got here.
Recessions are not uncommon. Markets and economies naturally ebb and flow, as we've seen many times in our history. But this recession is different. This recession was not caused by a normal downturn in the business cycle. It was caused by a perfect storm of irresponsibility and poor decision-making that stretched from Wall Street to Washington to Main Street.
As has been widely reported, it started in the housing market. During the course of the decade, the formula for buying a house changed: Instead of saving their pennies to buy their dream house, many Americans found that suddenly they could take out loans that by traditional standards their incomes just could not support. Others were tricked into signing these subprime loans by lenders who were trying to make a quick profit. The reason these loans were so readily available was that Wall Street saw big profits to be made. Investment banks would buy and package together these questionable mortgages into securities, arguing that by pooling the mortgages the risks had somehow been reduced. And credit agencies that are supposed to help investors determine the soundness of various investments stamped the securities with their safest rating when they should have been labeled "Buyer Beware."
No one really knew what the actual value of these securities were, no one fully understood what the risks were. But since the housing market was booming and prices were rising, banks and investors just kept buying and selling them, always passing off the risk to someone else for a greater profit without having to take any of the ultimate responsibility. Banks took on more debt than they could handle.
The government-chartered companies Fannie Mae and Freddie Mac, whose traditional mandate was to help support traditional mortgages, decided to get in on the action by buying and holding billions of dollars of these securities. AIG, the biggest insurer in the world that had a very traditional insurance business that was very profitable, decided to make profits suddenly by selling billions of dollars of complicated financial instruments that supposedly insured these securities. Everybody was making record profits -- except the wealth created was real only on paper. And as the bubble grew, there was almost no accountability or oversight from anyone in Washington.
Then the housing bubble burst. Home prices fell. People began to default on their subprime mortgages. And the value of all those loans and securities plummeted. Banks and investors couldn't find anyone to buy them. Greed gave way to fear. Investors pulled their money out of the market. Large financial institutions that didn't have enough money on hand to pay off all their obligations collapsed. Other banks held on tight to their money and simply stopped lending.
Now, this is when the crisis spread from Wall Street to Main Street. After all, the ability to get a loan is how you finance the purchase of everything from a home to a car to, as you all know very well, a college education. It's how stores stock their shelves, and farms buy equipment, and businesses make payroll. So when banks stopped lending money, businesses started laying off workers. When laid-off workers had less money to spend, businesses were forced to lay off even more workers. When people couldn't get a car loan, a bad situation at the auto companies became even worse. When people couldn't get home loans, the crisis in the housing market only deepened. Because the infected securities were being traded worldwide and other nations also had weak regulations, this recession soon became global. And when other nations can't afford to buy our goods, it slows our economy even further.
So this is the situation, the downward spiral that we confronted on the day that we took office. So our most urgent task has been to clear away the wreckage, repair the immediate damage to the economy, and do everything we can to prevent a larger collapse. And since the problems we face are all working off each other to feed a vicious economic downturn, we've had no choice but to attack all fronts of our economic crisis simultaneously.
The first step was to fight a severe shortage of demand in the economy. So the Federal Reserve did this by dramatically lowering interest rates last year in order to boost investment. My administration and Congress boosted demand by passing the largest recovery plan in our nation's history. It's a plan that's already in the process of saving or creating 3.5 million jobs over the next two years. It's putting money directly into people's pockets with a tax cut for 95 percent of working families that's now showing up in paychecks across America. And to cushion the blow of this recession, we also provided extended unemployment benefits and continued health care coverage to Americans who've lost their jobs through no fault of their own.
Now, you will recall that some argued this recovery plan is a case of irresponsible government spending, that it's somehow to blame for our long-term deficit projections, and that the federal government should be cutting instead of increasing spending right now. So I want to tackle this argument head on.
To begin with, economists on both the left and the right agree that the last thing a government should do in the middle of a recession is to cut back on spending. You see, when this recession began, many families sat around the kitchen table and tried to figure out where they could cut back. And so have many businesses. And this is a completely reasonable and understandable reaction. But if everybody -- if everybody -- if every family in America, if every business in America cuts back all at once, then no one is spending any money, which means there are no customers, which means there are more layoffs, which means the economy gets even worse. That's why the government has to step in and temporarily boost spending in order to stimulate demand. That's exactly what we're doing right now.
Second, I absolutely agree that our long-term deficit is a major problem that we have to fix. But the fact is that this recovery plan represents only a tiny fraction of that long-term deficit. As I'll discuss in a moment, the key to dealing with our long-term deficit and our national debt is to get a handle on out-of-control health care costs -- not to stand idly by as the economy goes into free fall.
So the recovery plan has been the first step in confronting this economic crisis. The second step has been to heal our financial system so that credit is once again flowing to the businesses and families who rely on it.
The heart of this financial crisis is that too many banks and other financial institutions simply stopped lending money. In a climate of fear, banks were unable to replace their losses from some of those bad mortgages by raising new capital on their own, and they were unwilling to lend the money they did have because they were afraid that no one would pay it back. It's for this reason that the last administration used what they called the Troubled Asset Relief Program, or TARP, to provide these banks with temporary financial assistance in order to get them lending again.
Now, I understand that TARP is not popular, and I have to say that I don't agree with some of the ways the TARP program was managed, but I do agree with the broader rationale that we must provide banks with the capital and the confidence necessary to start lending again. That's the purpose of the stress tests that will soon tell us how much additional capital will be needed to support lending at our largest banks. Ideally, these needs will be met by private investors who are willing to put in money to these banks. But where that's not possible, and banks require substantial additional resources from the government, then we will hold accountable those who are responsible, we'll force the necessary adjustments, we'll provide the support to clean up those bank balance sheets, and we will assure the continuity of a strong and viable institution that can serve our people and our economy.
Of course, there are some who differ with our approach. On the one hand, there are some who argue that the government should stand back and simply let these banks fail -- especially since in many cases it was their bad decisions that helped create the crisis in the first place. But whether we like it or not, history has shown repeatedly that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months -- years of low growth, years of low job creation, years of low investment, all of which cost these nations far more than a course of bold, upfront action.
And although there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of to banks -- one of my most frequent questions in the letters that I get from constituents is, "Where's my bailout?" -- and I understand the sentiment. It makes sense intuitively, and morally it makes sense, but the truth is that a dollar of capital in a bank can actually result in $8 or $10 of loans to families and businesses. So that's a multiplier effect that can ultimately lead to a faster pace of economic growth. That's why we have to fix the banks.
Now, on the other hand, there have been some who don't dispute that we need to shore up the banking system, but they suggest that we've been too timid in how we go about it. This is essentially the nationalization argument that some of you may have heard. And the argument says that the federal government should have already preemptively stepped in and taken over major financial institutions the way that the FDIC currently intervenes in smaller banks, and that our failure, my administration's failure to do so is yet another example of Washington coddling Wall Street -- "Why aren't you tougher on the banks?"
So let me be clear: The reason we have not taken this step has nothing to do with any ideological or political judgment we've made about government involvement in banks. It's certainly not because of any concern we have for the management and shareholders whose actions helped to cause this mess. Rather, it's because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it's more likely to undermine than create confidence.
Governments should practice the same principle as doctors: First, do no harm. So rest assured -- we will do whatever is necessary to get credit flowing again, but we will do so in ways that minimize risks to taxpayers and to the broader economy. To that end, in addition to the program to provide capital to the banks, we've launched a plan that will pair government resources with private investment in order to clear away the old loans and securities -- the so-called toxic assets -- that are also preventing our banks from lending money.
Now, what we've also learned during this crisis is that our banks aren't the only institutions affected by these toxic assets that are clogging the financial system. AIG, for example, is not a bank, it's an insurance company, as I mentioned -- and yet because it chose to insure billions of dollars worth of risky assets, essentially creating a hedge fund on top of an insurance company, its failure could threaten the entire financial system and freeze lending even more. And that's why, as frustrating as it is -- and I promise you, nobody is more frustrated than me with AIG -- (laughter) -- I promise -- we had to provide support for AIG, because the entire system, as fragile as it is, could be profoundly endangered if AIG went into a liquidation bankruptcy.
It's also why we need new legal authority so that we have the power to intervene in such financial institutions, the same way that bankruptcy courts currently do with businesses that hit hard times but don't pose systemic risks -- and that way we can restructure these businesses in an orderly way that doesn't induce panic in the financial system -- and, by the way, will allow us to restructure inappropriate bonus contracts without creating a perception the government can just change compensation rules on a whim.
This is also why we're moving aggressively to unfreeze markets and jumpstart lending outside the banking system, where more than half of all lending in America actually takes place. To do this, we've started a program that will increase guarantees for small business loans and unlock the market for auto loans and student loans. And to stabilize the housing market, we've launched a plan that will save up to four million responsible homeowners from foreclosure and help many millions more to refinance their homes.
In a few weeks, we will also reassess the state of Chrysler and General Motors, two companies with an important place in our history and a large footprint in our economy -- but two companies that have also fallen on hard times.
Late last year, the companies were given transitional loans by the previous administration to tide them over as they worked to develop viable business plans. Unfortunately, the plans they developed fell short, so we've given them some additional time to work these complex issues through. And by the way, we owed that not to the executives whose bad bets contributed to the weakening of their companies, but to the hundreds of thousands of workers whose livelihoods hang in the balance -- entire towns, entire communities, entire states are profoundly impacted by what happens in the auto industry.
Now, it is our fervent hope that in the coming weeks, Chrysler will find a viable partner and GM will develop a business plan that will put it on a path to profitability without endless support from American taxpayer. In the meantime, we're taking steps to spur demand for American cars and provide relief for autoworkers and their communities. And we will continue to reaffirm this nation's commitment to a 21st-century American auto industry that creates new jobs and builds the fuel-efficient cars and trucks that will carry us toward a clean-energy future.
Finally, to coordinate a global response to this global recession, I went to the meeting of the G20 nations in London the other week. Each nation has undertaken significant stimulus to spur demand. All agreed to pursue tougher regulatory reforms. We also agreed to triple the lending capacity of the International Monetary Fund -- which, as many of you know, is an international financial institution supported by all the major economies -- so that they can provide direct assistance to developing nations and vulnerable populations. That's not just charity; because America's success depends on whether other nations have the ability to buy what we sell, it's important that we pay attention to these emerging markets.
We pledged to avoid the trade barriers and protectionism that hurts us all in the end. And we decided to meet again in the fall to gauge our progress and take additional steps if necessary.
So that's where we've been, that's what we've done in the last three months. All of these actions -- the Recovery Act, the bank capitalization program, the housing plan, the strengthening of the non-bank credit market, the auto plan, and our work at the G20 -- all have been necessary pieces of the recovery puzzle. They've been designed to increase aggregate demand to get credit flowing again to families and businesses and to help families and businesses ride out the storm. And taken together, these actions are starting to generate signs of economic progress.
Because of our recovery plan, schools and police departments have cancelled planned layoffs; clean energy companies and construction companies are re-hiring workers to build everything from energy-efficient windows to new roads and highways. Our housing plan has helped lead to a spike in the number of homeowners who are taking advantage of historically-low mortgage rates by refinancing, which is like putting a $2,000 tax cut in your pocket. Our program to support the market for auto loans and student loans has started to unfreeze this market and securitize more of this lending in the last few weeks. And small businesses are seeing a jump in loan activity for the first time in months.
Now, this is all welcome and encouraging news. It does not mean the hard times are over; 2009 will continue to be a difficult year for America's economy, and obviously, most difficult for those who've lost their jobs. The severity of this recession will cause more job loss, more foreclosures, and more pain before it ends. The market will continue to rise and fall. Credit is still not flowing nearly as easily as it should. The process for restructuring AIG and the auto companies will involve difficult and sometimes unpopular choices; we are not finished yet on that front. And all of this means that there's much more work to be done. But all of this also means that you can continue to expect an unrelenting, unyielding, day-by-day effort from this administration to fight for economic recovery on all fronts.
But even as we continue to clear away the wreckage and address the immediate crisis, it is my firm belief that our next task, beginning now, is to make sure such a crisis never happens again. (Applause.) Even as we clean up balance sheets and get credit flowing again, even as people start spending and businesses start hiring -- all that's going to happen -- we have to realize that we cannot go back to the bubble-and-bust economy that led us to this point.
It is simply not sustainable to have a 21st-century financial system that is governed by 20th-century rules and regulations that allowed the recklessness of a few to threaten the entire economy. It is not sustainable to have an economy where in one year, 40 percent of our corporate profits came from a financial sector that was based on inflated home prices, maxed-out credit cards, over-leveraged banks and overvalued assets. It's not sustainable to have an economy where the incomes of the top 1 percent has skyrocketed while the typical working household has seen their incomes decline by nearly $2,000. That's just not a sustainable model for long-term prosperity.
For even as too many were out there chasing ever-bigger bonuses and short-term profits over the last decade, we continued to neglect the long-term threats to our prosperity: the crushing burden that the rising cost of health care is placing on families and businesses; the failure of our education system to prepare our workers for a new age; the progress that other nations are making on clean energy industries and technologies while we -- we remain addicted to foreign oil; the growing debt that we're passing on to our children. Even after we emerge from the current recession, these challenges will still represent major obstacles that stand in the way of our success in the 21st century. So we've got a lot of work to do.
Now, there's a parable at the end of the Sermon on the Mount that tells the story of two men. The first built his house on a pile of sand, and it was soon destroyed when a storm hit. But the second is known as the wise man, for when "the rain descended, and the floods came, and the winds blew, and beat upon that house, it fell not: for it was founded upon a rock."
It was founded upon a rock. We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock. We must lay a new foundation for growth and prosperity -- a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad.
It's a foundation built upon five pillars that will grow our economy and make this new century another American century: Number one, new rules for Wall Street that will reward drive and innovation, not reckless risk-taking -- (applause); number two, new investments in education that will make our workforce more skilled and competitive -- (applause); number three, new investments in renewable energy and technology that will create new jobs and new industries -- (applause); number four, new investments in health care that will cut costs for families and businesses; and number five, new savings in our federal budget that will bring down the debt for future generations. (Applause.)
That's the new foundation we must build. That's our house built upon a rock. That must be our future -- and my administration's policies are designed to achieve that future.
Let me talk about each of these steps in turn. The first step we will take to build this foundation is to reform the outdated rules and regulations that allowed this crisis to happen in the first place. It is time to lay down tough new rules of the road for Wall Street to ensure that we never find ourselves here again. Just as after the Great Depression new rules were designed for banks to avoid the kind of reckless speculation that helped to create the depression, so we've got to make adaptations to our current set of rules: create rules that punish shortcuts and abuse; rules that tie someone's pay to their actual job performance --- a novel concept -- (laughter); rules that protect typical American families when they buy a home, get a credit card or invest in a 401(k). So we've already begun to work with Congress to shape this comprehensive new regulatory framework -- and I expect a bill to arrive on my desk for my signature before the year is out.
The second pillar of this new foundation is an education system that finally prepares our workers for a 21st century economy. You know, in the 20th century, the G.I. Bill helped send a generation to college. For decades we led the world in educational attainment, and as a consequence we led the world in economic growth. But in this new economy, we've come to trail the world's leaders in graduation rates, in educational achievement, in the production of scientists and engineers. That's why we have set a goal that will greatly enhance our ability to compete for the high-wage, high-tech jobs of the 21st century: By 2020, America will once again have the highest proportion of college graduates in the world. That is the goal that we have set and we intend to do. (Applause.)
To meet that goal, we have to start early. So we've already dramatically expanded early childhood education. (Applause.) We are investing in innovative programs that have proven to help schools meet high standards and close achievement gaps. We're creating new rewards that tie teachers' performance and new pathways for advancement. And I've asked every American to commit to at least one year or more of higher education or career training, and we have provided tax credits to make a college education more affordable for every American, even those who attend Georgetown. (Applause.)
And, by the way, one of the changes that I would like to see -- and I'm going to be talking about this in weeks to come -- is once again seeing our best and our brightest commit themselves to making things -- engineers, scientists, innovators. (Applause.) For so long, we have placed at the top of our pinnacle folks who can manipulate numbers and engage in complex financial calculations. And that's good, we need some of that. (Laughter.) But you know what we can really use is some more scientists and some more engineers, who are building and making things that we can export to other countries. (Applause.)
Now, the third pillar of this new foundation is to harness the renewable energy that can create millions of new jobs and new industries. We all know that the country that harnesses this new energy source will lead the 21st century. Yet we've allowed other countries to outpace us on this race to the future. I don't know about you, but I do not accept a future where the jobs and industries of tomorrow take root beyond our borders. I think it's time for America to lead again.
So the investments we made in the Recovery Act will double this nation's supply of renewable energy in the next three years. (Applause.) And we are putting Americans to work making our homes and buildings more efficient so that we can save billions on our energy bills and grow our economy at the same time.
Now, the only though that we can truly spark the transformation that's need is through a gradual, market-based cap on carbon pollution, so that clean energy is the profitable kind of energy. (Applause.)
There are those who've argued that we shouldn't attempt, we shouldn't even be thinking, we shouldn't even be talking about such a transition until the economy recovers. And they are right that we have to take into account the costs of transition. Transitioning to a clean energy economy will not be easy. But we can no longer delay putting a framework for a clean energy economy in place. That needs to be done now. (Applause.)
If businesses and entrepreneurs know today that we are closing this carbon pollution loophole, they'll start investing in clean energy now. And pretty soon, we'll see more companies constructing solar panels, and workers building wind turbines, and car companies manufacturing fuel-efficient cars. Investors will put some money into a new energy technology, and a small business will open to start selling it. That's how we can grow this economy, enhance our security, and protect our planet at the same time.
Now, the fourth pillar of our new foundation is a 21st century health care system where families, businesses and government budgets aren't dragged down by skyrocketing insurance premiums. (Applause.) One and a half million Americans could lose their homes this year just because of a medical crisis. Major American corporations are struggling to compete with their foreign counterparts. Small businesses are closing their doors. We can't allow the cost of health care to continue strangling our economy.
And that's why our Recovery Act will invest in electronic health records with strict privacy standards that can save money and lives and reduce medical error. That's why we've made the largest investment ever in preventive care, because that's one of the best ways to keep costs under control. And included in the budgets that just passed Congress is an historic commitment to reform that will finally make quality health care affordable for every American. (Applause.) So I'm looking forward in the next few months to working with both parties in Congress to make this reform a reality. We can get this done -- and we have to get it done.
Now, fixing our health care system will -- will require resources; it's not going to be free. But in my budget we've made a commitment to fully pay for reform without increasing the deficit, and we've identified specific savings that will make the health care system more efficient and reduce costs for us all.
In fact, we've undertaken an unprecedented effort to find this kind of savings in every corner of the budget, because the final pillar in building our new foundation is restoring fiscal discipline once this economy recovers.
Already we've identified $2 trillion dollars in deficit reductions over the next decade. We need to do more, but we've already done that. We've announced procurement reform that will greatly reduce no-bid contracts and save the government $40 billion. We need to do more, but that's an important start. Secretary Gates recently announced a courageous set of reforms that go right at the hundreds of billions of dollars in waste and cost overruns that have bloated our defense budget without making America safer. We need to do more, but that proposal by Secretary Gates is right on target. We will end education programs that don't work, we will root out waste and fraud and abuse in our Medicare program.
Altogether, this budget will reduce discretionary spending for domestic programs as a share of the economy by more than 10 percent over the next decade to the lowest level we've seen since we began keeping records nearly half a century ago. And as we continue to go through the federal budget line by line, we will be announcing additional savings, secured by eliminating and consolidating programs that we don't need so we can make room for the things that we do need.
That's what we're doing now. Of course, I realize that for some, this isn't enough. I know there's a criticism out there that my administration has been spending with reckless abandon, pushing a liberal social agenda while mortgaging our children's future. You've heard the argument.
Well, let me make three points. First, as I said earlier, the worst thing that we could do in a recession this severe is to try to cut government spending at the same time as families and businesses around the world are cutting back on their spending. So as serious as our deficit and debt problems are -- and they are very serious -- major efforts to deal with them have to focus on the medium and long-term budget picture, not on the short-term. And that's exactly what we've done.
Second, in tackling the deficit issue, we simply cannot sacrifice the long-term investments that we so desperately need to generate long-term prosperity. That's the argument that some critics have made: Well, you're proposing health care reform, you shouldn't be doing that; you're proposing education investments, you shouldn't be doing that, that adds to the deficit.
Look, just as a cash-strapped family may cut back on all kinds of luxuries, but will still insist on spending money to get their children through college, will refuse to have their kids drop out of college and go to work in some fast-food place, even though that might bring in some income in the short-term, because they're thinking about the long term -- so we as a country have to make current choices with an eye for the future. (Applause.)
If we don't invest now in renewable energy, if we don't invest now in a skilled workforce, if we don't invest now in a more affordable health care system, this economy simply won't grow at the pace it needs to in two or five or 10 years down the road. If we don't lay this new foundation now, it won't be long before we're right back where we are today. And I can assure you that chronically slow growth will not help our long-term budget situation. That's the second point.
Third point, the problem with our deficit and debt is not new. It has been building dramatically over the past eight years, largely because big tax cuts combined with increased spending on two wars and the increased costs of government health care programs have pushed it ever upwards. This structural gap in our budget, between the amount of money that's coming in and the amount of money that's going out, will only get worse as the baby boomers age, and will in fact lead us down an unsustainable path.
But let's not kid ourselves and suggest that we can solve this problem by trimming a few earmarks or cutting the budget for the National Endowment for the Arts. That's just not true. (Applause.) Along with defense and interest on the national debt, the biggest cost drivers in our budget are entitlement programs like Medicare, Medicaid, and Social Security -- all of which get more and more expensive every year. So if we want to get serious about fiscal discipline, and I do, then we're going to not only have to trim waste out of our discretionary budget -- which we've already begun -- we will also have to get serious about entitlement reform.
Now, nothing will be more important to this goal than passing health care reform that brings down costs across the system, including in Medicare and Medicaid. (Applause.) So make no mistake, health care reform is entitlement reform. That's not just my opinion -- that was the conclusion of a wide range of participants at the Fiscal Responsibility Summit that we held at the White House in February. And that's one of the reasons why I firmly believe we need to get health care reform done this year. (Applause.)
Once we tackle rising health care costs, we must also work to put Social Security on firmer footing. It's time for both parties to come together and find a way to keep the promise of a sound retirement for future generations. And we should restore a sense of fairness and balance to our tax code including by shutting down corporate loopholes and ensuring that everyone pays what they owe. (Applause.)
All of these efforts will require tough choices. All these efforts will require compromise. But the difficulties can't serve as an excuse for inaction -- not anymore -- which brings me to one final point I'd like to make today. I've talked a lot about the fundamental weakness in our economy that led us to this day of reckoning. But we also arrived here because of a fundamental weakness in our political system.
For too long, too many in Washington put off hard decisions for some other time on some other day. There's been a tendency to spend a lot of time scoring political points instead of rolling up sleeves to solve real problems.
There's also an impatience that characterizes this town -- an attention span that has only grown shorter with the 24-hour news cycle that insists on instant gratification in the form of immediate results or higher poll numbers. When a crisis hits, there's all too often a lurch from shock to trance, with everyone responding to the tempest of the moment until the furor has died down, the media coverage has moved on to something else, instead of confronting the major challenges that will shape our future in a sustained and focused way.
This can't be one of those times. The challenges are too great. The stakes are too high. I know how difficult it is for members of Congress in both parties to grapple with some of the big decisions we face right now. I'd love if these problems were coming at us one at a time instead of five or six at a time. It's more than most Congresses and most Presidents have to deal with in a lifetime.
But we have been called to govern in extraordinary times. And that requires an extraordinary sense of responsibility -- to ourselves, to the men and women who sent us here, to the many generations whose lives will be affected for good or for ill because of what we do here.
There is no doubt that times are still tough. By no means are we out of the woods just yet. But from where we stand, for the very first time, we're beginning to see glimmers of hope. And beyond that, way off in the distance, we can see a vision of an America's future that is far different than our troubled economic past. It's an America teeming with new industry and commerce, humming with new energy and discoveries that light the world once more -- a place where anyone from anywhere with a good idea or the will to work can live the dream they've heard so much about.
That is the house upon the rock -- proud, sturdy, unwavering in the face of the greatest storms. And we will not finish it in one year. We will not finish it in many. But if we use this moment to lay that new foundation, if we come together and begin the hard work of rebuilding, if we persist and persevere against the disappointments and setbacks that will surely lie ahead, then I have no doubt that this house will stand and the dream of our founders will live on in our time.
Conclusion:
American political history is marked by periods in which various ideological assumptions dominate our civic life. These include:
- The Foundational Era, which begin with the signing of the Declaration of Independence and ended at the inauguration of George Washington, and which lasted from 1776 to 1789;
- The Washingtonian Era (also known as the Federalist Era), which was defined by the economic, social, and international policies of George Washington and John Adams, all of which were instrumental in creating the modern American federal government, and which lasted from the beginning of Washington's presidency in 1789 to the election of Thomas Jefferson in 1801 (while the election itself occurred in 1800, Jefferson did not officially win until Congress resolved his dispute with Aaron Burr in the following year);
- The Jeffersonian Era, which was defined by the economic, social, and international policies of the Thomas Jefferson presidency (1801-1809) and which lasted from 1801 to 1828, the year of Andrew Jackson's election;
- The Jacksonian Era, which was defined by the economic, social, and international policies of the Andrew Jackson presidency (1829-1837) and which lasted from Jackson's first election in 1828 to the passage of the Kansas-Nebraska Act in 1854;
- The Civil War Era, which was defined by the heightening internal strife over the spread of slavery and lasted from the passage of the Kansas-Nebraska act in 1854 to the end of the Civil War in 1865;
- The First Gilded Age, which was defined by the economic, social, and international policies put forth by the Republican-majority in Congress over a then-supine presidency and which lasted from the end of the Civil War in 1865 to the ascension of Theodore Roosevelt to the presidency (due to William McKinley's assassination) in 1901;
- The First Roosevelt Era (or Progressive Era), which was defined by the economic, social, and international policies of the Theodore Roosevelt presidency (1901-1909) and which lasted from the inauguration of Theodore Roosevelt 1901 to the rejection of progressivism at the polls brought about Warren Harding's defeat of James Cox in the election of 1920;
- The Second Gilded Age, which was defined by the economic, social, and international policies advocated by Warren Harding his 1920 presidential campaign and which lasted from his election in 1920 to the first beginning of Franklin Roosevelt's presidency in 1933 (I do not begin with Roosevelt's election in 1932 as the left-wing views that defined the subsequent period were brought into American political life not by his first campaign for the presidency, which avoided substantive ideological declarations, but rather by the first hundred days of his presidency in the following year;
- The Second Roosevelt Era (or New Deal Era), which was defined by the economic, social, and international policies of the Franklin Roosevelt presidency (1933-1945) and which lasted from Roosevelt's first inauguration in 1933 to the beginning of Ronald Reagan's presidency in 1981 (although Reagan articulated conservative views during his 1980 presidential campaign, his election was primarily a rejection of Jimmy Carter and was hardly an embrace of Reagan's conservatism, as he failed to win even 51% of the popular vote and wound up splitting much of the anti-Carter vote with a liberal third-party candidate named John Anderson);
- The Third Gilded Age (or Age of Conservatism), which was defined by the economic, social, and international policies of the Ronald Reagan presidency (1981-1989) and which lasted from the inauguration of Ronald Reagan in 1981 to the rejection of the Reagan legacy and concurrent election of Barack Obama in 2008.
Just as a quick review:
- The Foundational Era (1776-1789), brought on by the signing of the Declaration of Independence
- The Washingtonian Era (1789-1801), brought on by the presidency of George Washington
- The Jeffersonian Era (1801-1828), brought by the election and presidency of Thomas Jefferson
- The Jacksonian Era (1828-1854), brought on by the election and presidency of Andrew Jackson
- The Civil War Era (1854-1865), brought on by the passage of the Kansas-Nebraska Act
- The First Gilded Age (1865-1901), brought on by the end of the Civil War and subsequent weakening of the presidency
- The First Roosevelt Era (1901-1920), brought on by the presidency of Theodore Roosevelt
- The Second Gilded Age (1920-1933), brought on by the election of Warren Harding
- The Second Roosevelt Era (1933-1981), brought on by the presidency of Franklin Roosevelt
- The Third Gilded Age (1981-2008), brought on by the presidency of Ronald Reagan
There are two features of our nation's political life that become immediately apparent when looking at these different periods of our history:
1) Our nation's ideological/political paradigm shifts back and forth between left-wing periods (the Jeffersonian Era, the Jacksonian Era, the Civil War Era, the First Roosevelt Era, and the Second Roosevelt Era) and right-wing periods (the three Gilded Ages). While the specific ideas advocated by the prevailing left-wing and right-wing groups of these different time periods have varied, the core assumptions they hold about the relationship that ought to exist between our government and its people, our government and other countries, and in general what principles are government should fight for (which is more often than not in direct correspondence with which constituency groups the dominant party happens to serve) have remained essentially the same.
2) Shifts in the nation's ideological/political paradigm are usually brought about the rise of a successful "game changing" president to power, who by dint of his leadership skills and actual achievements redefines the next few decades in accordance with his personal vision, so much so that subsequent presidents (as well as other political leaders) wind up defining their campaigns and careers by the benchmark he has set (with a majority party usually putting up politicians who embrace it and the minority party usually putting up politicians who oppose it).
This larger historical framework is important because it helps us understand that, after twenty-eight years of the Third Gilded Age/Reagan Era, America's ideo-political paradigm is now shifting back to the left, thanks to the policies of the nascent administration of President Barack Obama. Whether this shift will be permanent and beneficial to the country depends entirely on how successful Obama is in bringing to life the vision he articulated in his April 14th speech.
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