The Vital Center
From time to time until November 2012, I’ll be offering a snapshot of the emerging presidential race. This is the first. Here’s the headline: Given current national trends and a credible Republican nominee, the presidential election would be very, very close, and President Obama might even lose. The economic situation looks like it will not be good enough for the president to cruise to victory, yet it will not so bad that voters are in the mood to repudiate him.
Along with a large and increasing number of Americans, I care about the long-term deficit because I think that, left unchecked, it will constrict and distort our future economy and society. And I am far from alone in believing that President Obama’s FY2012 budget proposal mostly evades the problem. According to the Congressional Budget Office’s recently released analysis, his proposal wouldn’t reduce the annual deficit below 4 percent of GDP, and the debt held by the public would double from $10.4 trillion to $20.8 trillion, nearly 90 percent of our GDP.
Dear Mr. President, I write as a supporter who understands how full your plate is right now. Three foreign wars, a fragile recovery from the deepest recession in many decades, and stubbornly high unemployment would be enough for any president. Regrettably, some issues present themselves, unbidden and unwelcome, and refuse to go away, leaving presidents no choice but to address them. In my judgment, which is increasingly widely shared—in the U.S.
Writing in 1977 on the topic of humanitarian interventions, a noted political philosopher had this to say: “[W]hen a government turns savagely upon its own people, we must doubt the very existence of a political community to which the principle of self-determination might apply. ... When a people are being massacred, we don’t require that they pass the test of self-help before coming to their aid. It is their very incapacity that draws us in. ...
As events abroad rivet the media’s attention, the outlines are being drawn for a fiscal debate that will shape both the 2012 election and our economic future. Over the past few weeks, important documents have appeared which make it clear that the situation is extremely dire—but also that the public is unaware of, or in denial about, the trade-offs needed to remedy our predicament. The only solution is for President Obama to engage with Congress and begin educating the public by explaining why we need not short-term spending cuts, but long-term fiscal balance.
The struggle over fiscal policy is likely to preoccupy official Washington for most of the 112th Congress. Although this fight is necessary and important, it should not divert our attention from fairly disturbing developments in the economy, where some key indicators are flashing warning signs. Consider the following. Consumer prices rose 0.5 percent in February, and so-called “core” inflation (excluding food and energy) was up 0.2 percent. Although official statistics treat food and energy as non-core, ordinary Americans regard them as central.
Most economists believe that while the recovery remains fragile, it is likely to accelerate over the next year. As recently as a month ago, the American people agreed. But they don’t anymore. And there is a threat that these suddenly gloomy expectations could turn out to be perversely self-fulfilling—causing Americans to stop spending and investing, and thus hobbling the pace of economic growth to slow the already subpar job rebound. Two recent surveys highlight the shift in popular sentiment.
In some presidential cycles, an incumbent’s reelection strategy doesn’t matter all that much. When the economy is very strong (1984), the incumbent wins big; when it’s very weak (1932), he loses even bigger. And when a party chooses a nominee seen as outside the mainstream (1964, 1972), it suffers a crushing defeat. It’s possible that one or more of these circumstances could prevail next year. The economy could over- or under-perform current projections; the Republicans could choose a nominee who’s too conservative or lacks credibility as a potential president.
President Obama’s newly released budget avoids any offer to fix the long-term, structural deficits that his fiscal commission put on the table, and in doing so confronts his Republican critics with a choice: take the lead (and the heat) for proposing entitlement cuts or admit to your followers that you can’t meet your own long-term spending targets. After sending mixed signals for a few days, Republican leaders have decided to take the lead and hope for the best.
When President Obama sends his latest budget proposal to Congress on Valentine’s Day, how will we know whether he is floating a serious proposal or just playing politics? I’ve written a guide to help TNR’s readers figure it out. In its latest long-term budget and economic estimates, the CBO looks at our fiscal future in two different ways. Its “baseline” budget assumes that current law does not change. Under that scenario, the deficit declines to about 3 percent of GDP by mid-decade and remains there until the end of the ten-year budget window.