President Barack Obama’s 2012 budget is a breathtaking economic gamble — with other people’s money.
The president chose to submit a profoundly unserious budget. There’s no entitlement reform — which would include addressing funding issues related to Medicare, Medicaid and Social Security — to close the long-term fiscal gap. There’s no tax reform. There are some minor cuts to marginal programs for show. But, overall, it’s very much a business-as-usual budget, with a few new and expensive long-term commitments thrown in for good measure (see, for instance, the high-speed rail initiative).
It’s like the president and his team woke up after the November 2010 mid-term election with a bad case of political amnesia. What deficit? What debt commission?
This isn’t what the president promised when he ran in 2008, nor is it what he told voters as recently as one year ago. Over and over, he has promised not to “kick the can” down the road, as he says his predecessors did before him. Instead, he would provide real leadership to tackle the looming threat posed by out-of-control borrowing and debt accumulation. That was supposedly the reason for appointing the Bowles-Simpson National Commission On Fiscal Responsibility and Reform in the first place, to lay the predicate for engaging in a bipartisan effort to narrow medium and long-term budget deficits and reduce the risk of a debt-induced crisis.
But now, all of that kind of thinking is out the window. If the president won’t show leadership on the budget, there’s zero chance congressional Democrats will. Some moderate Democrats in the Senate may make some noise about going farther than the president. But when push comes to shove, the rank and file Democrats in both chambers are far more likely to take a pass, too. Why would they take on large political risks when the president of their own party won’t and is likely to pull the rug out from under them if they do?
So, realistically, the Obama “punt,” as House Budget Committee Chairman Rep. Paul Ryan, R-Wis., has aptly described it, means the odds of a serious deficit reduction effort before the next presidential election are now low and falling.
What explains the president’s sudden abandonment of the leadership he had been promising? The answer is surely politics. He and his advisers must have concluded they would be better off going into a re-election campaign with massive borrowing on their record than with the political damage that might be inflicted if they embarked on a serious entitlement and tax reform exercise.
They might be right. Certainly deficit reduction efforts haven’t paid political dividends in the past. But 2011 is not 1992 or 1984 for that matter, when President Ronald Reagan won re-election despite running large deficits. As seen in the 2010 mid-term election, voters are more concerned than ever by the government’s mounting debts.
And President Obama won’t go into 2012 with just run-of-the-mill deficits on his record. The numbers are eye-popping. Under the budget the president submitted Monday, the 2012 deficit would top $1.1 trillion — the fourth straight year in which the government ran a deficit in excess of $1 trillion. As Obama runs for re-election in late 2012, the debt will be approaching $12 trillion, up from $5.8 trillion at the end of 2008.
All of that has occurred even before the baby boom generation’s retirement has hit with full force. According to the Congressional Budget Office, spending on Social Security, Medicare, Medicaid and the new entitlements created in the health law will total about $1.6 trillion in 2011. By 2021, spending on just those programs will reach $3.0 trillion, a jump of $1.4 trillion in just 10 years. The president’s budget leaves these programs on auto-pilot. Consequently, according to the president’s own numbers, the debt will reach $19 trillion in 2021 — and it would be even higher if not for the assumptions of a booming economy and implausible “offsets” from the health law.
Politicians make political calculations all of the time, of course. That’s to be expected. But there’s also an expectation that the president will do whatever is necessary to steer the ship of state away from serious danger, not toward it, no matter the consequences politically.
Unfortunately, by “punting” on entitlements, the president is steering the nation’s economy directly toward the rocks. No doubt he is betting that there will be time to make a course correction after he is safely re-elected.
But that’s a bet that could go very wrong. Among others, former Federal Reserve Chairman Alan Greenspan has been sounding the alarm for months that there isn’t much time left to head off a crisis. Ratings agencies are warning that a downgrade of U.S. debt instruments is not only not out of the question, but it’s likely absent a sharp course correction. The government’s interest payments on the debt are set to explode in coming years as the economy recovers, which will mean servicing the debt could cost as much as the entire defense budget by the end of the decade. Peter Orszag, the president’s former budget director, has made it clear a debt crisis is headed our way, and that political leaders probably won’t head it off before it hits.
And if a debt-induced economic crisis does in fact hit the United States before political leaders have summoned the courage to take action themselves, the primary casualties will be the very people the president claims he wants to protect. If interest rates spike, the ensuing recession would throw millions more out of work. Government borrowing would become prohibitively expensive, necessitating deep and arbitrary cuts in programs serving the most vulnerable. It would be forced austerity, with no room for relief.
It would be far better to control our own destiny and choose the manner by which we impose more discipline. But the president has chosen otherwise, with risks for us all.