Next Job for Obama: Block That Budget Deal

President Obama showed real spine in standing up to Tea Party hostage takers. Now he needs to draw on the same grit in the budget negotiations set to begin immediately as part of the deal to reopen the government and raise the debt ceiling. 

More specifically, Obama should stop any deal from happening at all. Why? Because any budget agreement that could pass the House of Representatives is not an agreement that will be good for the country. Instead of deal making now, Democrats should wait to score electoral gains in 2014 and, if necessary, hold out until after the 2016 election to address the nation's long-term budgetary problems. 

Make no mistake: The U.S. does have long-term fiscal challenges. As I wrote here recently:

the CBO predicts that programs for seniors and interest on the debt will, together, equal 22 percent of GDP a quarter century from now. As it happens, federal spending today equals, well, about 22 percent of GDP. So what the CBO is telling us is that, if we keep the size of the federal government constant as a share of the GDP, all federal spending in 25 years will have to go to entitlement programs for old people and interest on the debt. 

Progressives don't want to live in that future any more than Republicans, with a government that pretty much only can afford to write checks to seniors and creditors. 

And this scenario assumes that growth is pretty steady and nothing super bad happens -- like a major war or pandemic or giant natural catastrophe or another big financial crisis. Yet as I noted the other day, there are good reasons to think that slow growth will be the norm in coming years, much slower than historic averages. And it's also quite conceivable that the negative effects of climate change could hit much faster than previously thought, as many scientists now worry -- say, by taking out South Florida with a Class 5 hurricane. Another big financial crisis is also eminently possible, given the failure to punish the cowboys who orchestrated the last one or fix a number of problems on Wall Street. A crisis that drives interest rates way up, like the default we just narrowly averted, could make the CBO's scary projections exponentially more scary. 

So, yes, there are plenty of good reasons to fear for America's fiscal future and do everything we can to put us in good shape as the Boomers retire and as serious threats lurk on the horizon. 

But the right solutions to that challenge will never emerge from this Congress. Here are four must-have fiscal fixes that today's Congress will never, ever consider: 

More dramatic steps to control healthcare costs, which are the main driver of America's long-term fiscal problems. Nearly every other advanced country in the world keeps health spending under 10 percent of GDP through massive government intervention in the healthcare market. We spend 17 percent of GDP because we grant too much power to market forces and Obamacare doesn't do enough to change that, even with all the experiments in lowering costs that it is financing. If Democrats can win a resounding victory in 2016, a window may open to revive the public option or otherwise improve Obamacare to do far more to drive down healthcare costs -- and thus make a huge dent in the fiscal challenge. 

Bigger defense cuts. While security spending is falling as a percentage of GDP, the United States still plans to spend more than $7 trillion on security over the next decade, maintaining defense budgets that are as big in real dollars as they were during the Cold War. The U.S. can either be the world's cop or pay for the Boomer's retirement and the investments needs to be globally competitive. It can't do all three, but this Congress will never agree to much deeper defense cuts, even if Obama propsed them. 

Major new public investments to spur growth. The best way to lower deficits long-term is to ensure stronger growth, defying fears of slow growth, and we know how to do that: by big investments in human and physical capital, along with scientifice research -- the historic building blocks of American innovation and prosperity. But this Congress will never sign off on such investments as part of a longer term budget deal. 

Much higher taxes. This is the most obvious step that is off the table for today's Congress. While it's possible to imagine closing a few loopholes for the rich or corporations in a new budget deal, measures that bring in the serious big bucks we need -- say, through a financial speculation tax or a carbon tax -- will never pass the House. 

If the U.S. can't deal with our fiscal challenges through the above steps, we're left with whacking Social Security and Medicare over the next decade in ways that will inevitably hurt seniors and do little to get at our deeper budgetary problems. 

That's why no deal is the way to go. Not until the balance of power changes in Washington. And now that Obama has neutered the hostage weapon, he can afford to block a budget deal. 

Comments