WILLIAM GALSTON JANUARY 28, 2010
In his State of the Union address, President Obama executed his well-advertised double pivot toward job generation and fiscal restraint. Almost lost in the pundits' babble was the release of a CBO report, “The Budget and Economic Outlook: Fiscal Years 2010 to 2020,” coupled with CBO director Doug Elmendorf’s testimony to the House and Senate budget committees. CBO’s analysis makes it clear just how daunting the employment and fiscal challenges are over the next decade . . . and how perilous the political terrain will be for the Democratic Party.
Let’s start with jobs. For a variety of structural reasons, despite the severity of the recession, CBO predicts a slower-than-average recovery, with fourth-quarter to fourth-quarter GDP growth of only 2.1 percent in 2010 and 2.4 percent in 2011. This means that unemployment this November is likely to be about where it is right now—namely, 10 percent. At the end of 2011, it will stand at 9.1 percent. As growth accelerates in 2012, unemployment will decline more quickly, but it will still be high by historical standards—between 7.5 and 8 percent—on the eve of the next presidential election. Assuming no new recession, we won’t return to full employment until 2016.
These projections are very bad news for middle-class Americans—and for politicians as well. A midterm election conducted in these circumstances is likely to go poorly for the majority party, all the more so because no one thinks that the short-term measures the president proposed will make much of a difference over the next ten months. And no president wants to begin his campaign for reelection with unemployment over 9 percent.
What about the fiscal situation? Using the legally required baseline assumptions, the budget deficit is expected to average about $600 billion a year between 2011 and 2020, and the debt-to-GDP ratio would rise from 53 percent to 67 percent. Using more realistic assumptions, the annual deficits would be much larger, and the debt would reach nearly 100 percent of GDP. Almost no one thinks that our economy could sustain this level of borrowing and debt accumulation without severe damage, including soaring interest payments that would crowd out needed public and private investment.
It’s hard to avoid the conclusion that, while Obama has accurately identified the economic challenges we face, the responses he has proposed thus far are woefully inadequate. Last week, he told Diane Sawyer that he’d rather be a successful one-term president than a mediocre two-term president. Unfortunately, there’s a third possibility. To avoid it and become the transformational president he clearly wants to be, he must challenge his administration, his party, and the entire political system to acknowledge the true scope of our ills and embrace solutions commensurate with the problems.