Obama's Other Deficit
Thomas, Evan, Newsweek
Byline: Evan Thomas
The president needs to tell the truth on taxes, entitlements, and how to really reform health care--before it's too late.
It has long been an unwritten rule of political professionals: Thou Shalt Not Demand Sacrifice of the Voters. Do not propose to raise taxes (remember what happened to Walter Mondale in 1984, when he won just one state and the District of Columbia against Ronald Reagan). Never sound gloomy about the future (remember Jimmy Carter and malaise). Always be upbeat (remember Ronald Reagan, again). And never, ever propose to cut the big entitlement programs, Social Security and Medicare. Those senior citizens turn out to vote!
The pros--the advisers and well-paid political consultants--might permit their clients to say a few words about "hard choices" in their uplifting speeches about the greatness of the people. And when it comes time to propose a budget, the president's handlers will tolerate--or imagine--projected savings and revenues from unspecified sources. But that's all for the "out" years, as the lawmakers call them--a time of truly hard choices and real sacrifice that never seems to come.
But what happens when the time really does come? When the debt is piled too high, when the economy threatens to sink under the weight of accumulated obligations that have been put off too long? There are more than a few signs that those times are not so far away for the federal government, and that in some big (and big-spending) states, the day of reckoning is now.
President Obama's new federal budget proposal projects, with unusual clarity, that the trillion-dollar-plus federal deficits piling up during the current recession are not just a temporary condition necessitated by hard times, soon to be cured by a return to prosperity. Rather, the red ink threatens to drown us. For many years, federal spending remained about 20 percent of the overall economy. But under Obama it's now a quarter of the economy. The national debt has grown to more than 50 percent of GDP, and according to the nonpartisan Congressional Budget Office, it could plausibly approach 100 percent of GDP by 2020--a figure not reached since World War II. Unless something drastic happens--like significant tax increases and cuts in those sacred entitlement programs--the cost of the government will continue to outrun revenue by staggering margins.
Well, so what? Can't the government keep on borrowing? During wartime and deep recessions the federal debt has soared and then settled down once peace and prosperity returned. In America, the political classes have always been saved by growth--the wondrous engine of the American economy that has spared the politicians from having to face up to dire choices in taxing and spending.
But a new era of high economic growth is not inevitable. The Next Big Thing--say, the long-awaited green revolution in high tech, alternative energy sources, and the like--should not be confused with the Next Sure Thing. What if government spending really does outrun growth in a way that chokes the economy before it can take off again? Will the Chinese--our rivals for world economic supremacy and the power that goes with it--indefinitely support our profligate ways by buying our debt?
The federal government can, it's true, always print more money. Not so the states, many of which also have balanced-budget requirements. Dominated by the political power of public-employee unions demanding generous pensions and benefits, big state governments--California, New York, New Jersey--are starting to go over the fiscal cliff. California was driven to pay some of its obligations with IOUs, not cash. There are dark mutterings about "failed states"--state governments that are utterly dysfunctional.
Even the federal government faces a grim prospect relatively soon. Simply printing money means high inflation. The seniors who saw their fixed income eaten away by the double-digit annual price hikes of the late '70s and early '80s are mostly gone by now. …