BUDGET 2011: OBAMA’S BIG REALITY CHECK

First came the poetry of the January 25th State of the Union address: It was time for Americans to remember that they were “the light of the world,” Obama said – time to “out-innovate, out-educate, and out-build” those who might think the country’s best days were behind it.    “We do big things,” he declared, and we can “win the future.”

Then the prose of the February 15th budget message: Proposing billions for education, green energy, and transportation/infrastructure initiatives designed to spur long-term economic growth.  And to lighten the pall of a burgeoning national debt, a blueprint for billions more in spending cuts – including five-year plans for taking $78 billion from the Pentagon budget and $40 billion from “non-security discretionary spending.”

Prose is rarely as stirring as poetry (especially in politics, as Mario Cuomo argued) – but this particular Obama transition may be especially discomforting.  There’s a bit of a Don Draper/Mad Men moment here: crafting a glowing Lucky Strikes ad while sidestepping the evidence of tobacco’s dangers.

Does the U.S. president have a serious chance, for instance, of getting what he’s proposing?  Powerful Republican/Tea Party forces are ready to wield what Senator Harry Reid calls a “meat ax” to chop $100 billion from spending for the six remaining months of the current fiscal year.  White House plans for future investments will have to run this gauntlet – as well as a guaranteed double down response to presidential proposals for deficit reduction.

And, more importantly, even if his own skills or shifts in political winds actually give Obama the budgetary results he’s seeking, is there any chance they will achieve what his poetry conjures? There are many reasons to doubt.  On one hand, the scale of the investments in innovation and growth are like amuse-bouches on the menu of what is needed.  As the State of the Union address was honest enough to admit, for example, the country merits a “D” for infrastructure decrepitude.  Would spending $50 billion on high-speed rail (over 6 years) lift this above a C-minus – given serious constraints on federal and state-level spending?  (A disturbing contrast on this one front alone – for Americans – is found in China’s pending completion, ahead of schedule, of a $300 billion program to develop its high-speed rail grid.)

On the other hand, the token nature of investments is mirrored in the deficit plans. A freeze on discretionary spending yields a yearly average savings of $40 billion – vs. the $1.6 trillion deficit for 2011 alone.  This is compounded (so to speak) by the complete deferral of moves to cage the 800-pound gorilla of entitlements like Medicare.  (Any likelihood that the cage will be built in the lead-up to the 2012 election?)

Achievement is not impossible as Obama spins out his prose, to be sure.  Others – Franklin D. Roosevelt, for example – have earned high marks while facing intimidating odds.  FDR faced an economic crisis much more severe (25% unemployment vs. 10%).  He moved within a national political arena replete with angry voices and zanies: Sarah Palin doesn’t hold a candle (so far) to Father Coughlin, even if some grazing Alaskan caribou might beg to differ. And the global arena had Germany and Japan on rampages that make Tehran and Pyongyang pale in comparison (again, so far).

Yet FDR managed real achievements in his unpromising environment.  There were certainly limits and blemishes: too tame an assault on fundamental wealth and income inequities, it can be argued – and too great a readiness to let the energy peter out after the 1936 election gave way to 1937’s “Roosevelt recession.” Yet admirable “liberal” milestones were erected as well, yielding substantive benefits and lending ongoing sheen to the “New Deal”: an initiative like “social security” was strikingly constrained at first, but it was an “opening wedge” innovation that enabled improvements through the decades – creating a cherished entitlement that even most Tea Party enthusiasts are loathe to challenge.  Add in relief efforts that aided millions and systemic reforms like the Tennessee Valley Authority (and other core infrastructure projects), rural electrification (a 1930s counterpart to high-speed internet), and the late-lamented Glass-Steagall Banking Bill – and you have an impressive legacy.

So will Obama struggle his way through to FDR status in the history of the U.S. presidency?  He’s not without his early distinctions and achievements: a charisma that’s different from Roosevelt’s, but impressive in its own right (an idealistic/professorial hybrid vs. the sunny/empathetic patrician); legislative “opening wedges” like the health care program; reform of long-distasteful policies on gays in the military.  But the package isn’t as powerful as Roosevelt’s – and there are sinkholes apparent all over the place (unemployment and Guantanamo to name two).  Nor does Obama have the extreme severity of 1930s crises as a springboard.  Rahm Emanuel, Obama’s former Chief of Staff, may have said “You never let a serious crisis go to waste,” but Ben Bernanke – currently head of the Federal Reserve and an expert on the Great Depression – would know how 2008 did not provide quite enough fuel for the more ambitious reformers and transformers.

Still, it’s early days yet (two years compared to FDR’s twelve) and Obama himself likes to emphasize the importance of the “long game.” But is that an approach that will work in a domestic arena far more prone to “short game” helter skelter (replete with budgetary meat axes)?  Or in a global arena where Obama’s “light of the world” may be rheostating from 100 watts to 60?  Stay tuned for the next State of the Union address, the next budget message – and the next election.

 

RELATED MATERIAL FOR THE WEEK OF FEBRUARY 21

Barack Obama became the 44th president of the United States on 20 January 2009. So far in his presidential career, Obama has compiled a list of early accomplishments that include stabilizing the economy, passing health care reform bills that extend  healthcare to nearly every American; repealing the “don’t ask don’t tell” policy that barred openly homosexual/bisexual persons from serving in the military; and signing and then achieving passage of the new START nuclear arms reduction treaty with the Russian Federation.

However, there remain partisan and analysts alike who remain unimpressed by Obama’s legislative track record.  Though Obama’s healthcare reform provided the poor with access to healthcare, the US unemployment rate continues to rise. High unemployment undermines support for any administration and in an employer delivered system of healthcare the individual may lose a job and healthcare as well. Moreover, the US budget deficit continues to grow: according to recent forecasts made by the Congressional Budget Office, the US fiscal deficit will exceed prior forecasts by nearly 40 percent and hit $1.48 trillion this year.  All this raises concern that the Administration is taking the country in a wrong direction.

To address this looming fiscal crisis, President Obama unveiled a fiscal 2012 budget during his February 14 budgetary address that strives to cut $1.1 trillion from the deficit over the next ten years. Observers consider this proposal as an opening bid in a lengthy negotiation process involving House and Senate leaders of both parties. The proposed $3.7 trillion budget aims to downsize or cut over two hundred government programs, but economists question the effectiveness of this proposal in generating savings in the short term. Moreover, the budget has yet to cut non-discretionary (entitlement) aspects of the budget such as social security and even defense spending.  The budget also depends upon generating $1.6 trillion in new revenue through higher taxes on the wealthy and industry over the next ten years.

In response to the President’s budget, Republicans are demanding greater deficit reduction through reforms on entitlement spending. Republicans have accused the president of delaying efforts to cut long-term entitlement spending on programs such as Medicare and the Social Security retirement program – which account for more than half of the federal budget.

The Republican Party is expected to develop its own fiscal budget for 2012 which aims to cut non-discretionary as well as discretionary spending on programs and runs counter to the $3.7 trillion budget proposed by president. Members of the In the meantime the House GOP and Tea Party proponents have passed a budget that cuts the current 2011 spending budget by $61 billion.  Thus, there is a large gap between the President and his party and the Republican and Tea Party majority in the House and the enlarged minority in the Senate.

However, the dissenting parties must make an effort to close this gap: With the government funded only through March 4, a Continuing Resolution (CD) needs to be passed by the Senate – when they return in one week – to prevent a shutdown of the federal government.  The last shut occurred in 1995 during the Clinton Administration.  The American public looked with strong disfavor on those they saw responsible for the shutdown.

RELATED MATERIAL

  • A video and transcript of US President Barack Obama’s 2012 Budgetary Address can be found on this website.
  • Click here for a video of President Obama’s January 25th State of the Union Address.
  • The Financial Times (FT) has a feature page dedicated to the Obama Presidency with news, videos, comments and analysis.
  • The Economist comments in this article that the challenge of grappling with America’s medium-term deficit issues has not been met by Barack Obama’s 2010 budget.
  • The Brookings Institute has a webpage dedicated to the US federal budget deficit featuring news, research and commentary on the subject.
  • Four experts from the Council of Foreign Relations examine how effectively the White House’s proposed FY2012 budget can “balance spending cuts with investment to boost competitiveness”.
  • Dana Milbank from the Washington Post argues the Obama budget is not confronting the problem of the deficit and national debt in a responsible manner.
  • As talks of a potential government shutdown come to a head, Charles Babington from the Huffington Post reminisces about the shutdown in 1995 and draws comparisons between the ‘then’ and the ‘now’.