Obama’s Grand Bargain (as a necessary response to the deficit problem)


By Joe Campbell
June 10th, 2009


 
David Leonhardt has a typically excellent piece in the Times with a helpful graph explaining the deficit problem. Leonhardt tells the story of how the $800 billion surpluses left by Bill Clinton have turned into $1.2 trillion deficits – or what he calls the “$2 trillion swing.” He identifies four categories of spending accounting for the swing in descending order of significance:

the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.

Leonhardt identifies only 10% of the current deficit as resulting from either Obama’s stimulus package or new spending (which is only 3%). 20% of the deficit is traced to Bush policies set to expire that Obama is continuing – for example, a large portion of Bush’s tax cuts and the Iraq war. 33% comes from legislation signed by Bush – like the Medicare prescription act. And Leonhardt attributes 37% of these enormous deficits – the single largest factor – to the combination of increased counter-cyclical spending (on food stamps, unemployment, etc.) and a decrease in government revenues resulting from the downturn.

This math is a large part of what made those Tea Parties – as well as so much of the Republican opposition – ridiculous. First, these Tea Parties – and most of the opposition – was silent while George W. Bush pushed through legislation account for 53% of the current deficit – but suddenly was up in arms once a Democrat proposed 10% in spending to stimulate the economy and fix some significant problems. At the same time, many of those conservatives who were strong opponents of Bush continue to propose more tax cuts. In fact, during the debate over the stimulus bill, Republicans denounced the deficits being caused by government spending while proposing a tax cut bill that would create even large deficits.

What Leonhardt describes is a nation that has been subjected to the conservative “starve the beast” strategy of cutting taxes and increasing spending. This deliberate policy has brought us to the brink of disaster – as George Will describes:

For years, many conservatives advocated a “starve the beast” approach to limiting government. They supported any tax cut, of any size, at any time, for any purpose, assuming that, deprived of revenue, government spending would stop growing. But spending continued, and government borrowing encouraged government’s growth by making big government cheap: People were given $1 worth of government but were charged less than that, the balance being shifted, through debt, to future generations. In 2003, Republicans fattened the beast with the Medicare prescription drug benefit (Cooper opposed it), which added almost $8 trillion in the present value of benefits scheduled, but unfunded, over the next 75 years.

Liberalism’s signature achievement — the welfare state’s entitlement buffet — will, unless radically reduced, starve government of resources needed for everything on liberalism’s agenda for people not elderly. Conservatives want government limited, but not this way.

Leonhardt quotes Alan Auerbach, an economist at the University of California, Berkeley,

Bush behaved incredibly irresponsibly for eight years. On the one hand, it might seem unfair for people to blame Obama for not fixing it. On the other hand, he’s not fixing it.

And not fixing it is, in a sense, making it worse.

I think Andrew Sullivan has the right tack on this:

I don’t blame Obama for failing to turn all this around in five months, and for running a debt this big right now. I willblame him if he does nothing serious to tackle this in the next year.

Leonhardt has been a reporter with good access to the White House in these early days of the presidency. Which suggests that this article is not coming out of the blue for this administration. In fact, shortly before taking office, Obama talked about the “Grand Bargain” he would need to negotiate to deal with precisely this issue. It seems to me that this piece begins to set the stage for what Obama is looking to do after cap-and-trade and health care are passed – to tackle the issues of tax reform and entitlement reform.

All this makes his continued and extraordinary attempts to woo members of the House and Senate – and his efforts to give them a role in determining policy (as described in Matt Bai’s new article) – essential. As Bai describes:

“One of the mistakes of the past is that when presidents arrive on Capitol Hill with legislation chiseled into stone, it’s not well received,” says David Axelrod, one of Obama’s most influential advisers. “You have to give people a sense of ownership.”

Obama seems to have decided early on that his model for pursuing legislation would be something closer to Ronald Reagan, a president whose political savvy he has often expressed admiration for. Partly by necessity, because he had to work with a Democratic Congress, Reagan was known for providing broad policy frameworks while delegating the details to lawmakers. In this way, he managed to fundamentally reform the tax code and shore up Social Security during his first year in office — achievements for which he gladly took credit, even if Congress didn’t give him precisely what he wanted. To this end, Obama’s chief health care adviser, Nancy-Ann DeParle, has been all over Capitol Hill, consulting with various members and soliciting their advice, but the administration has been careful not to weigh in with too much authority or to make any public pronouncements on the negotiations.

Obama may have been able to push through health care and cap-and-trade with his Democratic majorities and personal popularity. But he needs the Congress and Senate to work with him on tax reform and entitlement reform once the financial crisis has been dealt with. Or perhaps sooner – as the bond market pressures the administration to set a clear path which involves a return to fiscal sanity.

To do this, Obama needs the trust and support of a large majority of Congressmen and Senators. And he needs to mobilize public and elite opinion to support a significant change in our tax and spending policies. This article by David Leonhardt strikes me as an attempt to set the stage for this soon-to-be debate.

[Picture by Peter Souza courtesy of the White House.]

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4 Responses to “Obama’s Grand Bargain (as a necessary response to the deficit problem)”

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    […] deliberate plan of the right-wingers who want to “starve the beast” – by which they mean encouraging the irresponsible system above of  increasing spending […]

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