The market made me do it
On the deficit, Mr. Obama has chosen not to lead. Is there a Plan B?
IN HIS STATE of the Union address Tuesday night, President Obama failed to present a credible plan for long-term debt reduction. It’s no secret that we think he made a big mistake. If America can’t get a handle on its finances, everything else is at risk: military strength, the safety net for the poor, the ability to invest for future economic growth. But now that the president has punted, is there any conceivable path toward fiscal sanity?
Last year it seemed the president had set out on such a path. He appointed a bipartisan commission to study the debt, the idea being that it could propose solutions that everyone knows are needed but that are so politically charged neither party dares propose them first. And the commission, chaired by Democrat Erskine Bowles and Republican Alan Simpson, came through: It produced a credible plan that won support from key members of both parties. Mr. Obama could have embraced the results without accepting every facet of them and challenged congressional leaders to do the same, with the goal of fashioning a debt-reduction plan that would reassure markets and international lenders.
The president took a cagier route. He hailed the commission’s “important progress” without endorsing any of its recommendations. He acknowledged that the government will have to raise taxes, but said it in such a convoluted way — referring to the need to cut “spending through tax breaks and loopholes” — that no one could possibly understand. He pledged a willingness to reform Social Security, but “without slashing benefits for future generations”— phrasing that conceivably left him room to reduce benefits, below some slash threshold known only to him, while sounding as though he opposes any cuts at all.
What could explain such cynicism? One theory would be that Mr. Obama doesn’t agree about the seriousness of the problem. If this is so, his rhetoric — two years agohe warned, “We can no longer afford to leave the hard choices for the next budget, the next administration or the next generation,” and on Tuesday he reiterated, “Now, the final step — a critical step— in winning the future is to make sure we aren’t buried under a mountain of debt”— is just that, rhetoric. But the arithmetic is so clear, and mainstream economists are so in agreement, that it seems unlikely that Mr. Obama would be a secret dissenter.
A second possibility is that he calculated the chances of getting a deal at close to zero. House Republicans are convinced that the problem can be solved simply by cutting spending. The arithmetic again says otherwise, but until they come around, Mr. Obama may have concluded that there’s no point in trying to bargain— might as well wait until 2013. In that case the key goal would be reelection, which would explain why the Tuesday speech at times sounded like a campaign kickoff: drawing distinctions between Democratic farsightedness and Republican myopia, and appealing to core interest groups such as teachers, construction workers and senior citizens.
The third, and scariest, possibility is this: The White House may have decided that debt reduction is so tough it has to await what officials, speaking not for attribution, have termed a “forcing event” — a spike in interest rates, a reluctance by foreigners to buy U.S. debt or some other market disruption that would frighten Congress into action. What’s disturbing about this idea is that such “forcing events” tend to take on lives of their own; once a panic starts, it’s not easily controlled.
It’s not too late forMr. Obama to apply a different kind of forcing event: presidential leadership. We understand it’s tough. Americans say they want deficit reduction, but they oppose just about every kind of tax hike or spending cut needed to make deficit reduction happen. But they also are genuinely worried about the debt and the European example. Candor, instead of caginess, might yield results.