Following his second inaugural address, The Crimson Staff criticized President Barack Obama for defending entitlement programs “wholesale” and advocating for deficit reduction only in passing. In the conventional wisdom, to which the piece dutifully adhered, the federal government has a borrowing problem that poses a major threat to the economy now and in the future, and immediate and significant cuts to entitlement programs represent the only real solution.
On its face, the conventional wisdom is correct. America does have a debt problem, it is dragging on our economy, and entitlements could use reform. But the true fiscal crisis America faces right now is not fundamentally an economic one—it’s political. For this crisis, Obama’s speech was dead on.
The prevailing economic argument against current debt levels says that, despite record-low interest rates on Treasury bonds today, the United States’ creditors will eventually demand higher interest rates out of fear that the government will be unable to meet its obligations. While no one can pinpoint the exact debt level at which this crisis will occur, America’s debt over the past four years theoretically presents a huge risk.
Yet, despite years of dire warnings, no such crisis is upon us. Short-term Treasury rates remain near all-time lows, negative when adjusted for inflation—investors are effectively paying the U.S. government to hold their money. Indeed, market signals today suggest the American government should be borrowing more, not less, while it is so cheap to do so.
Further, in spite of these signals, Obama and the Congress have already reduced the deficit by about $2.4 trillion in a series of deals. Another $1.4 trillion, analysts say, and the deficit and debt will both remain at reasonable levels for the next 10 years.
And yet, says the conventional wisdom, we have a debt crisis.
Deficit hawks insist that stabilizing the debt over the next 10 years is not enough, pointing to unsustainable debt-to-GDP ratios in the 2040s or ’50s. Lacking the economic impetus for action on a problem years down the road, however, they have turned to political tactics. Economists and politicians on both sides have elevated the debt to a national emergency through doomsday debt crisis scenarios—rather than an honest debate about the virtues of deficit reduction—knowing that nothing gets done in Washington without a crisis.
Aided by Washington gridlock, this political maneuver has succeeded. Democrats and Republicans cannot agree on how to reduce the deficit, so every fiscal battle comes with the possibility of default, downgrade, and/or recession. Such high levels of uncertainty, combined with the austerity that eventually emerges, have hindered the recovery and called into question our political system’s ability to, quite literally, pay the bills. Many have mistaken these as consequences of our debt itself, rather than the way we have chosen to approach it. This mistake only fuels the crisis narrative.
Yes, our recent fiscal conundrums have had some benefit. It should take only one or two more fiscal-cliff-type dramas this spring to bring the debt on a sustainable path for the coming decade. Addressing the debt beyond that, however, requires major reforms to programs, like Medicare, contingent upon future health care costs that are unpredictable today—and may already be falling thanks to the Affordable Care Act. All told, the high costs these manufactured crises have wrought on our economy and political system seem to far outweigh the potential benefits of further budget cuts.
Yet the debt crisis narrative—a political choice disguised as economic reality—has gained so much credence that it is unlikely to fade.
Unless politicians begin to change the conversation.
Unless, that is, lawmakers finally start emphasizing our pressing national issues—like climate change, immigration, gun violence, and most of all, unemployment—rather than persisting in their failed attempts at “grand bargains” designed to brace for potentialities many years down the road while distracting from other priorities.
President Obama’s second inaugural aimed to do just that. Calling upon Americans to “act in our time,” the president signaled an end to debt crisis politics. The speech displayed a new Obama pragmatism that aims to improve America’s future prospects by addressing current realities.
This may seem like a plea for shortsightedness, and in a strict sense it is. But politics is the art of the possible. Is it possible that we could set the debt on a steady course not only ten but 30, 40 years down the road? Just 15 years ago, the federal government was projected to pay off its entire debt by the year 2009. Unfortunately, things like 9/11, two wars, and a massive financial crisis got in the way.
So let’s continue to reduce the debt to manageable levels. Let’s reform entitlements to improve efficiency and secure them for the future. Let’s make our tax code fairer and more pro-growth. And let’s implement and improve Obamacare to start bending the health care cost curve and reducing long-term debt responsibly. But let’s say goodbye to the debt crisis narrative that has outlived its usefulness and now works to the detriment of concrete economic and social goals. The President has.
Daniel E. Backman ’15 is a social studies concentrator in Mather House.