By kowtowing to the deficit hawks, the president is snatching defeat out of the jaws of victory.
The Republican-led House has passed a budget cutting more than $60 billion in domestic outlay this fiscal year, in a still fragile economy. Senior Republicans in both houses have also proposed slashing Social Security, setting up what should be a slam dunk for Democrats defending America's best loved public program.
But while Republicans overreach, President Barack Obama sometimes seems determined to snatch defeat out of the jaws of victory. The president can't quite bring himself to draw a line in the sand and declare that Democrats will never allow cuts to Social Security benefits. Nor does Obama's own budget propose sufficient job-creation measures. Rather, both parties have their own version of deficit-reduction fever, crowding out more urgent national needs and marginalizing the scope of necessary debate.
In the dubious spirit of the president's own fiscal reform commission, a bipartisan group of six senators is working on a grand budget compromise. Their formula includes Social Security cuts as well as an automatic trigger mechanism that forces deeper spending cuts if predetermined deficit targets are not met.
The bipartisan group is also working on a tax deal that closes loopholes and cuts rates. Obama has embraced this idea, which sounds good until you look at the fine print. The prime targeted "loopholes" are tax preferences that mainly benefit the middle class such as the homeowner deduction and tax benefits for pensions and 401(k)s, while the rate cuts would mainly help corporations and the wealthy. The proposed deal raises little or no net revenue.
The group of six includes deputy Democratic Senate Leader Dick Durbin of Illinois, who is close to President Obama and widely assumed to be acting in concert with the White House. The only good news is that some senior Senate Democrats, including Senate Leader Harry Reid of Nevada and Chuck Schumer of New York, are pushing back on the trigger idea and want a bright line that keeps Social Security out of current budget talks. Republicans are on the wrong side of public opinion, and this is no time to blur differences.
President Obama, however, is evidently calculating that the Republicans will so embarrass themselves that by November 2012, he will look to middle America like the judicious moderate. The recent increase in his poll numbers lends support to that view. But looking moderate in a severe economic crisis is not sufficient. Presidents do not win re-election based on national polls but at actual polling places in swing states such as Ohio, Pennsylvania, Michigan, and Illinois, where unemployment remains sky-high and voters share little of the Beltway reverence for austerity.
Only in the Washington echo chamber is fiscal austerity Job One. Out in America, Job One is, well, jobs, a topic eerily absent from White House priorities. According to a January New York Times/CBS poll, 43 percent of those polled put job creation as the top concern. Deficit reduction was the main issue for only 14 percent.
Though it is unthinkable for Democratic deficit hawks and Republican foes of public outlay, domestic job creation will require substantially more public investment and larger deficits for the next few years. The time to pay down debt is when the economy recovers.
Consumer and business purchasing power today are too weak to propel the economy into self-sustaining recovery. This economic drag is compounded by a still wounded banking sector and by housing prices that are still falling in 18 of the 20 top metro areas. So the economy is stuck in an equilibrium well below its production and employment potential, even as gross domestic product resumes modest growth.
Supposedly, deficit reduction will give business more confidence to invest and hire, by reducing risks of inflation. But for an actual business person, the practical question is: If I expand production and take on more employees, who will buy the products? Inflation is ticking upward for reasons unrelated to budget deficits; the main source is rising demand for global commodities in nations like China and India.
President Obama had some eloquent words for public investment, both in his January State of the Union address and in his February speech to the U.S. Chamber of Commerce. But the president's actual budget did not deliver on the promise.
When public opinion is basically on your side, it is a moment to lead, not to prematurely compromise. It would be salutary for the president to put forth a bold recovery program and dare Republicans to vote it down. Necessary compromise to keep the government operating can come afterward, and it will. Even better would be for Democrats to make it crystal clear which party defends and strengthens social insurance.