A State of the Union speech is a kind of red carpet awards ceremony for the federal government — without the glamour. About the only thing of interest is how far the applause meter will bounce when the audience responds to each antiphon as a President recites from a script designed to be interrupted by applause.
President Thomas Jefferson had the right idea about the State of the Union report: write it up and send it to Congress…no speech. That healthy practice lasted for over a century until the prelude to World War I prompted Woodrow Wilson to revive the speech idea.
The growth of radio and TV took it from there, quickly enshrining the speech as an annual ritual. Television in particular, though, has had a tendency to emphasize the self-congratulatory aspect of the State of the Union Report and, consequently, has gradually increased its resemblance to an entertainment industry awards ceremony.
Realities such as economics and public finance do not generally play a big part in State of the Union scripts, except in those years when market crashes, recessions, or financial disarray demand hand-on-the-wheel reassurance and restoration of confidence.
The annual State of the Union report is a Constitutional requirement, even though the speech is not. Separately though, the Employment Act of 1946 requires the President to provide Congress with an annual report on the state of the economy. Over time this report, which is not televised, has suffered from an apparent decline in presidential interest and a consequent weight loss of its audience — which is now mostly made up of Congressional committee staffers, economists, and policy wonks.
It makes sense not to make too much of the economy at this time. While the economic recovery has an upbeat side, most of its positive achievements should have asterisks after them. Like some sports records and statistics, which can be affected by the number of games played or the structure of championship competitions, our economy has changed so much that the statistics aren’t what they used to be. The numbers reflect reality, but because the economy has changed it is a different dimension of reality from what we had gotten used to. Formerly brag-worthy levels of unemployment, for example, now need asterisks to explain how they have been affected by declining labor force participation or the spread of part-time jobs.
In its current form a State of the Union speech is not the place to list the number of things we don’t understand about the current economy. There are no applause-seeking lines in a litany of what we don’t know.
One thing we don’t know enough about involves the role of entrepreneurs and technology in our economy. For example, as we began to recover from the darkest days of the crash and recession, many economists were waiting for the expected “kick” that smaller businesses and entrepreneurial ventures would usually give to our output. It never arrived.
The U.S. Census Bureau’s Center for Economic Research (CES) recently put together a small, inter-agency posse to track down what happened to the missing “kick.” Their report, entitled, “Where Has All the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S.” has recently been published by the Census Bureau as a research paper (CES 15-43).
The chronology revealed in their analysis pretty much takes partisan politics out of the picture. As they report, “The pace of business dynamism and entrepreneurship in the U.S. has declined over recent decades.” But they found that “the character of that decline changed around 2000.” The term, “business dynamism” in this report is used by the authors to measure the flow of new firms entering and old firms dropping out.
The boost in new jobs created by entrepreneurial, young businesses that we had seen in previous economic recoveries had been provided by a relatively small number of firms. And for some reason, after 2000 these firms became harder and harder to distinguish from the rest of the pack. Their once-outstanding rates of growth in productivity and job creation began to converge on the average growth rate for the group.
Why, exactly? We don’t know yet. It might be changes in the business models used by young, innovative firms. It might be that the nature of technological innovation has changed, causing shifts in time-lines and consequent changes in financing. This seems to be the case in the pharmaceutical area, for example. And the roles of intellectual property rights, universities, government, and Wall Street cannot be ignored.
One thing is certain, though. If we want to get our economy’s kicking game back there are some things we need to do. One of them is to find answers to the questions raised by this report.
James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Herald Business Journal.
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