American Way: Barack Obama ducked the chance to tackle America’s financial death-spiral

When Barack Obama won a second term in office last November a tiny, guttering flame of hope was observed in the breasts of many hard-pressed Americans who wanted common sense to prevail in Washington.

American Way: Barack Obama ducked the chance to tackle America's financial death-spiral

‘Mr Obama is absolutely right that America’s future depends on investment – the country’s infrastructure is crumbling, its education system is failing while global competition advances – but just plain wrong to suggest these programs are sustainable without entitlement reform.’ Photo: EPA

That hope centered not on any naive expectation that Democrats and Republicans would suddenly learn to love each other, but that Mr Obama, freed from having to run for office again and in search of a personal legacy for his presidency, might start to show some leadership.

Last week, sad to report, those hopes flickered and died when Mr Obama delivered a State of the Union address that showed he has absolutely no intention of getting serious about arresting America’s long-term financial death-spiral.

This was an infuriatingly dishonest speech. Mr Obama spelled out very clearly America’s impending demographic crunch – too many baby-boomers, not enough money to pay for their benefits – but then falsely pretended the problem could be solved by tinkering around the edges.

“Medicare must embrace the need for modest reforms,” he allowed, warning that failure to fix America’s unsustainable entitlement system would “crowd out the investments we need for our children, and jeopardise the promise of a secure retirement for future generations.”

All true, except for that one word, “modest”. There is nothing modest about the size of America’s financial problems, as Doug Elmendorf, the director of the non-partisan Congressional Budget Office, explained last week when he was up on Capitol Hill spelling out budgetary home truths.

In plain English, that either means less generous benefits delivered at a later stage in life, or higher taxes across the board – or, in a common-sense world, a bit of both. But whatever the combination of spending cuts or new revenues, the changes required are “significant”, not “modest”, and the longer America waits, the more painful and damaging those costs will be.

Put another way, America, the “hope of the earth” and the standard bearer for the free-world, is suffering from financial dry-rot. If some curative treatment is not applied, by the end of the next decade Mr Elmendorf calculates that the US will be “bearing risks of a sort that we have not [had] in our history except for a few years around the end of the Second World War.”

This is where Mr Obama comes in. Or could have, had he chosen a more courageous path last Tuesday night and dared to take on the left wing of his party who continue to delude themselves – as Nancy Pelosi, the House Democratic Leader observed before the speech – that America doesn’t really “have a spending problem”.

It does – which means by definition it also has as a taxation problem which the Republican Party, in its refusal to countenance any further revenue raising, is being just as one-eyed and intransigent about as Democrats who think somehow the debt doesn’t matter.

But in the middle of that spectrum sit more than three-quarters of hard-working Americans who, according to a poll released last week, are deeply unsatisfied about the workings of their Congress.

For their sake, Mr Obama had a chance – very likely his last, given the political shelf-life of second term presidents – to offer a real fix and call the bluff of Republicans like House speaker John Boehner who predicted before the speech the president didn’t “have the guts” to confront his own party.

If that was a challenge to Mr Obama, he ducked it. Very likely you would have heard a pin drop on both sides of the aisle if the president had actually proposed something meaningful, but sometimes shocked silence from your own side, rather than the empty acclaim he received, is what true leadership sounds like.

Even clear-thinking Democrats were disappointed. As Matt Bennett, a former Clinton White House staffer who co-founded the centrist Third Way think-tank, put it: “This was the moment to put the chips on the table and press Democrats the way he’s pressed Republicans on everything else, and make some concessions. He left the door ajar, but he didn’t make a strong case that Democrats need to walk through it. That was the big missing piece.”

Instead, Mr Obama chose the path of timidity and half-truths. He offered a laundry-list of goodies – universal pre-school education, Space Race-levels of scientific research, new roads and bridges – while falsely promising these are affordable with only ‘modest reforms’ to entitlements that accounted for 43 per cent of all federal spending in 2012.

Mr Obama is absolutely right that America’s future depends on investment – the country’s infrastructure is crumbling, its education system is failing while global competition advances – but just plain wrong to suggest these programs are sustainable without entitlement reform.

Indeed, just how unsustainable became apparent within 24 hours, as Mr Obama embarked on a three-day national tour to trumpet his plans for universal pre-school, fixing infrastructure and raising the minimum wage, and all, he promised to widespread scepticism, without adding ‘a dime’ to the deficit.

But as the president waved to crowds in North Carolina, Georgia and Illinois, promising free pre-school education for all, his education secretary, Arne Duncan, was on Capitol Hill, drowning.

Nearly 100,000 American school children will be kicked off the Head Start school programme, he told senators, because of the automatic $85bn in cuts that are due to kick in on March 1, mostly to “discretionary” items like education.

This latest budget meltdown – the so-called “sequester” was designed to put a gun to the heads of both parties, in the belief no-one would dare pull the trigger. Now they are, sparking exactly the kind of chaotic, growth-wrecking budget crunch that the affordable, phased restructuring of a fiscal grand bargain is designed avoid, but which Mr Obama is plainly no longer serious about even trying to achieve.

Perhaps he thought it a fool’s errand dealing with today’s Republican Party, but still Mr Obama had a fleeting chance to reframe the debate; to play the role of deal-maker and save the entitlement system his party cherishes, possibly before a future Republican president does something far more drastic.

He elected not to take it; preferring to tell America you can still have your cake and eat it. So what is the true State of the Union? Like one of those morbidly obese folk you see all too often here, waddling up to the fast-food counter to order a super-sized meal and then taking a diet soda on the side, because they’re “watching their weight”, it is dangerously self-deluded.


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