A new era of growth is on the horizon

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Unexpected economic and political events could always intervene otherwise, but unless they do it looks like the United States is set to enter a new period of political activism.

Some investors may view activism as a negative, but that's precisely the opposite stance they should take toward the changes that are likely ahead. That's because in the US, each era of political activism in the past has led to an expansion of the middle class, a better life for the typical person, and a stronger economy characterized by sustainable growth.

U.S.: Liberty and education enlightening the world

Most investors, and citizens for that matter, don't realize that one of the reasons the United States ascended to great power and later to superpower status was that it was the first industrialized nation to adopt free, universal, public education, with every state offering free elementary education by 1880.

Free, universal public education was a radical notion at the time but the fruits of it in the United States were what you'd expect: workforce skills and training increased, more citizens learned value-added skills, incomes rose, and so did corporate revenue and earnings.

LBJ: The Great Society

Further, the benefits were similar during other activist periods: the post-World War II federal G.I. Bill enabled millions of World War II veterans to earn college degrees, a program that substantially increased talent pools in math and sciences, setting the stage for the space age breakthroughs that followed. Later, the expansion of college funding, loans, and student aid during President Lyndon B. Johnson'sGreat Society led to another wave of math and science learning -- setting the stage for the information technology breakthroughs that would follow in the decades ahead.

The man from Illinois


Today, President Barack Obama's proposed federal budget won't contain as large an increase (in percent-of-GDP terms) in education funding but substantial increases will occur, along with many other changes that herald a new era of activism. These include: $634 billion for health care reform to lower health care costs and move the nation toward universal health care coverage; and energy policy reform aimed at expanding the use of renewable energy resources -- a promising new sector that could create hundreds of thousands of new, domestic, good-paying jobs and that will reduce the nation's dependence on foreign oil.

What's more, if Obama can get the majority of U.S. troops out of Iraq, the activism will not result in the national debt rising to more than 60-65% of U.S. GDP. That's not a low national debt, but it's certainly serviceable, assuming normal GDP growth rates when the U.S. economy resumes its expansion.

Further, investors should not expect Obama's new, fiscal 2010 federal budget and the new era of activism to take hold without a fight. Fierce opposition will come from the ideological right -- from economic conservatives, including most Republicans. They want to maintain the status quo under which, basically, a small, upper-income segment benefits at the expense of the middle and working classes, and, as we've seen recently, at the expense of the U.S. economy. Major players likely to oppose Obama's economic changes are the powerful oil and health insurance lobbies, among others. They want to continue the policies that have seen the top 1percent control an economically-constraining 21 percent of U.S. wealth, up from 10 percent two decades ago. Even so, if these lobbies are really smart, they'll seek a compromise with Obama, and help usher in the reforms the U.S. economy really needs. If these groups do, they're strengthen the U.S.'s economic system -- corporate capitalism -- by expanding the middle class, by increasing the earning power of tens of millions of Americans, and by reducing poverty.

Today's economic coalition: The majority

That's because Obama has a large and growing political coalition -- it's the coalition that got him (big change) nominated over now Secretary of State Hillary Clinton (small change). And the economic conservatives, meanwhile, have little credibility. For all their bluster about cutting taxes (which unfairly benefited the rich over the middle and working classes), cutting government spending, and deregulation, fewer than four million new jobs were created during George W. Bush's eight years as president. And the economy? Well, we know what happened to the economy.

If, on the other hand, the oil, insurance, agriculture, and related lobbies oppose Obama's changes, their actions will ultimately be self-defeating because the economic and social problems aren't going to disappear if left unaddressed. And that would ultimately increase Obama's power, and Democratic Party majorities in the House and Senate.

And if that day occurs, we'll see a period with even bigger economic change and activism in these United States.

Financial Editor Joseph Lazzaro is writing a book on the U.S. Presidency and the U.S. economy.
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