Politics

Deficit Reduction Redux! Obama Needs to Focus on Fiscal Policy.

By

Yes, we know we’re tempting fate. But we figure there’s a 50 percent chance Obama will get reelected, and in any case he needs an agenda to campaign on. So we’ve asked a number of TNR writers to explain what they think Obama should focus on for the next four years if he wins in November. Click here to read the collected contributions.

Barack Obama’s second term would probably pivot around four basic questions, two domestic, two international.

How (if at all) we will move onto a fiscal course that is sustainable in the long term? Obama’s unsuccessful effort to reach a “grand bargain” with John Boehner was no flight of fancy, and the problem hasn’t gone away. There’s no guarantee that the results of the 2012 election will make agreement any easier to achieve. On the other hand, we already know that a quadruple witching hour will occur between the election and the end of the year: the Bush tax cuts will expire; the temporary payroll tax reduction will expire; we will bump up against the debt ceiling; and the sword of Damocles known as sequestration will eviscerate discretionary spending unless the law is changed to avert it. So however the election comes out, the lame-duck Congress and a president who may or may not be a lame duck will be forced to begin dealing with fundamental fiscal issues.

Will we be able to maintain the level of public investment required for long-term economic success? Majorities of both political parties believe that certain public investmentseducation, research, innovation, and infrastructure, among otherscontribute to economic growth. And even conservative-leaning public choice theorists acknowledge that markets tend to undersupply these public goods. But in recent years, disagreements about deficit spending and government’s management of its investments have blocked action on this consensus. Two things seem clear: We cannot achieve adequate levels of public investment without a broader agreement on fiscal policy; and we’ll have difficulty making those investments without a significant change in the way government does its business. That’s one of many reasons why the Obama administration's off-again, on-again support for an infrastructure bank is so promising in principle; not only would it mobilize private capital on behalf of public goods that enhance economic efficiency, but also it would remove project selection from direct political control.

Can we build a new diplomatic and security architecture for the Middle East that effectively balances our interests and our principles in the new context defined by the collapse or weakening of autocracies throughout the region? We have already learned the hard way that our relations with Egypt will be very different from those that prevailed for three decades under Mubarak. No doubt many other surprises are in store. If our policies will have to pay more attention to public opinion, and if that opinion is likely to lean toward Islamism, at least for a while, then how will we distinguish between the kinds of Islamism we can engage and those we must oppose? Can we find a way of preventing Iran from getting nuclear weapons, not just for a few years, but for the foreseeable future? If not, what can we do to prevent the standard parade of horriblesincluding a rush to proliferation throughout the regionfrom coming to pass? For better or worse, the rest of the world is looking to us to protect the freedom of the seas, the flow of oil through the Straits of Hormuz, and a measure of regional stabilitychallenges that will require substantial investments of military and diplomatic resources.

As China continues to surge as an economic and military power, how will Obama redeem his pledge to pivot toward the Pacific? Nations throughout East Asialongtime allies and former adversaries alikeare looking to us to balance newly assertive Chinese diplomacy and territorial claims while preserving the peace. We won’t be credible in this role unless we are willing to spend what it takes on naval power and land bases in the region. Here as elsewhere, there is a tension between the requirements of our declaratory policy and the reality of our fiscal situation. Secretary of Defense Leon Panetta has made it bluntly clear that he could not carry out his assigned mission if his budget is subjected to another $500 billion in cuts through sequestration.

So while I’ve laid out four defining questions for Obama’s second term, the firsta sustainable fiscal policyis key to all the rest. As we’ve seen, it’s also the one that comes first chronologically. Recent reports indicate that a bipartisan group in the House has resumed work on the deal that eluded Obama and Boehner last summer. While this effort may turn out to be another fool’s errand, the administration should be hoping that it’s serious, and the economic policy team should be preparing to engage on the issue as soon as the election is over, if not earlier.

William Galston is a senior fellow at the Brookings Institution and a contributing editor for The New Republic.

Loading Related Articles...
Politics
Article Tools
SHARE YOUR THOUGHTS

Show all 6 comments

You must be a subscriber to post comments. Subscribe today.