January 2004
State of the Union

On Tuesday, January 20, AEI scholars gave a pre-State of the Union briefing on the U.S. economy, health care, and foreign and defense issues.

Joseph Antos
AEI

Health care will be a Republican issue as long as the party is especially prepared to spend a lot of money and make significant compromises on reform ideas, or basic market-based principles.

Should pharmaceutical companies, insurance companies, and other entities negotiate pharmaceutical prices? Should Pfizer or Merck have the government potentially set prices for 40 percent of the market share? The underlying assumption is that the government can do a better job of getting a much lower price for pharmaceuticals, but the downside of such an approach is that investments in research and development will potentially be affected negatively.

A major theme of the president's State of the Union address will be the uninsured. The proposals the president will mention are in all likelihood, a rerun of some new ideas with the emphasis on lowering costs to consumers. Two of these proposals will be association health plans and the ability to cap damage awards.  There will be an emphasis on suggestions to take advantage of information technology to develop new drugs. Ultimately, these proposals attempt to make health care more efficient by lowering costs.
 
Douglas J. Besharov
AEI

The world has clearly changed quite rapidly on the issue of homosexuality.  Most importantly, the country as a whole seems to be becoming much more tolerant about homosexual activity. Young people especially seem to have a different view on homosexuality activity-this includes not only tolerance but also acceptance.  This fact complicates the president's decision to endorse a new amendment to the constitution that will ban same-sex marriage.

Passing a constitutional amendment that bans gay marriage is going to be a difficult task because the amendment needs to be worded in such a manner so that civil unions and other special arrangements are not prohibited.

The president will most likely keep his options open, saying as he has said in the past that he would only endorse a constitutional amendment if he deems it to be necessary.

Kevin A. Hassett
AEI

The two main indicators which suggest the economy is rebounding are:  business capital spending is up due to the fact manufacturing is booming, and the currency situation has made U.S. products more attractive.

While the economy is booming, the Federal Reserve statement released on January 15 shows that household wealth is the highest that it has ever been.   However, job creation seems to be disappointing.  The household survey says that we added one million and a half jobs last year, while the payroll survey, which surveys employers, said we barely added any jobs.   The 2004 election will be a referendum not only on the president's foreign policy, but also on his economic policies.

The president will also rehash some old policy proposals in the State of the Union address.  The most important proposal he will discuss is the lifetime savings account.  The lifetime savings account is like the Roth IRA, but an individual can take their money out at their own choosing.  The president's two main proposals, the lifetime savings account and retirement savings account, are the first steps to partial privatization of Social Security.

Richard Perle
AEI

On Election Day, Iraq will be President Bush's issue.  The two main reasons to be more optimistic about Iraq  are that the transfer of sovereignty to Iraqis will take place on June 30 and that we are currently training Iraqis so they can conduct their own policing.

The president has successfully responded to the September 11 terrorist attacks. Al Qaeda has been put off balance and is now being driven out of its sanctuaries.  The president's judgment that we would not distinguish between the terrorists and the states that sponsor them has stayed consistent.  The doctrine of pre-emption is a very logical doctrine.  We must attack states that threaten us so that more innocent lives are not lost on U.S. soil.

The greatest challenge in the address for the president is presenting the issues of national security and foreign policy with great confidence, but at the same time he needs to be careful so as to not lack credibility if a major terrorist attack occurs again or if there happens to be a major setback in Iraq.     

This summary was prepared by AEI communications intern Michael Billet.