The Real America Is Not Doing Well

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WASHINGTON – How is the “State of the Union”? Well, the Union President Obama described on January 25 in the course of the statutory annual Message to Congress apparently experienced some troubles. However, as our Chief Executive reported, it is now on the mend and on its way back to greatness, provided that we follow his “Washington-will-lead-investments-in-important-sectors” recipe. So, take heart and trust your government to spend wisely. Overall, things are looking good.

Make believe America

Very nice, except that most of this picture is fiction. What Obama talked about is a movie-like fantasy of an imaginary Washington where government has real resources, (read: money), to “invest”, other than just the desire to compile a nice wish list of things it would like to do, while exhorting the public to aim high and aspire to greatness. And this pep talk to Congress, and to America, this vision of a Washington-led, or at least facilitated, renaissance presented by the president, may be a blend of his own ideological convictions on the positive role that government –even a government in severe debt– should play, and a good dose of political calculation. I say “political calculation” because this genre of positive, yet generic, talk focusing on jobs, new infrastructure, growth, administrative reform, education and support for R&D may indeed be the high road to Obama’s re-election.

All about politics, not about governing

This was a political rather than a policy speech; and as such it did not detail any initiative or program. In other words, this speech was not about what government will do; but about goals and aspirations. In essence, this is the first salvo of the 2012 presidential race. And the fact that it was mostly fiction does not really matter politically. By presenting to the American public the unrealistic image of a government that can help, as if it had real money to spend, Obama may actually be in tune with voters desire not to be woken up from a a state of denial in which they want to believe that “things are getting better” and ”problems will be fixed”, if only we keep on using more of the public spending balm.

Sputnik moment?

And so, in his address to Congress, the president created uplifting images of great things that we Americans can do, if only Washington invested more in education, in science and infrastructure. This could be the “Sputnik Moment” of this generation–he said– a call to action to fill the gaps in science and technology and allow America to regain the mantle of world leadership. As we came back from behind in the race to space against the Soviets in the late 1950s, and managed to be first on the Moon in the 1960s, so we can roar back today and beat Asia in the high stakes game of globalization. “India and China think we are done and finished. But no, we can be great again”.

More will than wallet

All this is nice. Except for a small detail: there is no money for any of this –at least no public money. In the late 1950s we were scared by Sputnik as a technological challenge. But we had plenty of money to spend on that challenge. At that time, it was matter of drive and focus; capital was not an issue. Today, whatever our drive, Washington has no cash in hand for any of the things that Obama talked about: fast trains, (if we could afford them, I would strongly favor them), renewable energy, fast Internet for everybody, first class education for all. The plain truth that the president failed to disclose is that if we really wanted to seriously “invest” in all these worthy causes, we would have to add to an already fantastic level of public borrowing in order to fund them. And this means that the chances of making meaningful, (as opposed to token), investments in any of the sectors he talked about are close to zero.

Belief and political calculation

So, is the president an irresponsible populist promising fanciful stuff that will never happen, as it cannot be funded? As I said, it may be a blend of conviction and calculation. This was not a speech about governing and actually “doing things”. This was a political speech, the opening salvo of the 2012 presidential campaign. And it was delivered by a new “focus-on-the-economy” Obama in a political environment that has turned unexpectedly in his favor, notwithstanding the electoral defeat of last November. Briefly, the congressional Democrats are not doing well; but the victorious House Republicans appear a bit too extreme. And so Obama can reinvent himself as the new reassuring political center. And his nice speech about investments was reassuringly centrist in tone. Never mind the utter lack of substance.

What do Americans want?

If we look at politics, it is not at all clear that the loud anti-Obama feelings of November 2010 can be harnessed by an appealing, thoughtful, Republican candidate who will need a lot more than Tea Party support to win the White House in 2012. In the meantime, Obama is coming back nicely in the opinion polls, having risen past the psychologically critical 50 per cent mark.

But how is this swing possible? Well, Obama’s resurgence tells us that the anti-Washington November vote, while loud, was not deeply felt. Many unhappy Americans may have bought the anti-government, “let’s cut spending”, rhetoric during the campaign; but without a real understanding of how deep the cuts need to be in order to make a difference. Too many voters, including Tea Party rank and file, think naively that public spending can be fixed with a bit of discipline, cutting a few programs here and there and elimination of “fraud and abuse”.

The president is not telling the real story on the national debt

The notion that we are in serious trouble, that our fiscal problems are historically unprecedented in size and scope and that a real course correction requires a fundamental overhaul of cherished entitlement programs –read: the entire US welfare state–is not at all understood nor shared by the majority of the people; including most of those who voted Republican in November. So a Republican candidate running in 2012 on a “deep spending cuts” platform would have a hard time gathering momentum.

People may like the notion of less government –in the abstract. But they become a bit cold when you tell them that your political program is essentially about cutting their benefits. Obama knows this. Thus he has no intention, so far, to enlighten the voters as to the actual fiscal predicament we are in. In his speech to the Congress he mentioned the deficit; but he proposed a few symbolic and politically harmless cuts that do not even begin to address the problem. If you want to be re-elected, much more to gain politically by promising more stuff. Nothing to gain by promising austerity and cuts.

So, the country is confused as to the real dimensions of this problem and willfully kept in the dark by a leader who does not dare tell how bad things are. The only people who talk about cuts seem to be the Tea Party/Sarah Palin, somewhat discredited, fringes. And even these groups have yet to put together a credible, coherent government downsizing plan.

Recent developments show confusion

Let’s look at recent developments to take the measure of our national confusion on the state of federal finances. We had this historic elections last November that amounted to an “anti-Big Government” revolt, with a massive defeat for the Democrats. This was followed, however, barely a month after this historic vote, by an altogether underwhelming reception for the findings and recommendations of the Bowles- Simpson “Deficit Commission” Report.

The two Commission co-chairs really wanted to place the national debt on the front burner. They came up with a decent, believable plan to start reducing spending. But the Commission’s Report did not get much support even among the Commission’s own members and it left a light mark. Weeks later, it is essentially forgotten. Important to notice that president Obama, who set up the Commission, managed to thank the members, while not endorsing the Report. This was a calculated move.

Let’s not talk about difficult stuff

It is clear that the president has no intention of leading on the national debt/deficit issue. He may propose some spending cuts here and there; but he is not willing to risk his re-election on what may be the most complicated issue in American politics for this century: THE DRASTIC DOWNSIZING OF GOVERNMENT IN ORDER TO RECREATE FISCAL BALANCE.

What is worse, this abdication of presidential responsibility was fully matched by congressional irresponsibility when the House and the Senate, Democrats and Republicans coming together, happily voted in December for a huge extension of tax cuts for everybody, deserving and undeserving.

Tax cuts without spending cuts increase the deficit

So, look at the emerging picture. Weeks after an election in which “fiscal rectitude” won by large margins, no interest in serious deficit cutting; while the Congress voted to give presents to everybody, with no outcry from the fiscal conservatives. The net result is that, instead of cutting the deficit, we just added to it by virtue of lower taxes, without matching spending cuts. This easy vote aimed at winning popularity, right at this time of fiscal crisis, is the mark of total abdication and unseriousness regarding the debt. It reveals that nobody is in charge and that there is no appetite to get in front of a complicated issue unlikely to bring votes.

Obama’s economic agenda

In the meantime, while side stepping the debt issue, president Obama re-engaged America’s CEOs. He nominated Jeffrey Immelt of GE to be chair of a “Jobs and Competitiveness Council”; and finally, with the State of the Union Message, he came before Congress promising to throw the full weight of the federal government behind the laudable effort of out-educating and out-smarting our international competitors.

Even less money

Funnily enough, a day after the president’s speech the official estimates for the federal deficit went significantly up, (to 1.5 trillion), because of the impact of the tax relief present to all Americans voted by Congress before the end of December. But this fact, highlighting the contrast between Washington (president and Capitol Hill) promising goodies and a government that has even less money than we thought, did not make headlines, because nobody wants to dwell on the widening gap between goals and resources.

In fact, bad news aside, the president goes around the nation promising more Washington help for this and that. All those who should know fully realize that, lacking real money, this whole exercise is just propaganda. But somehow it appears impolite to point out the obvious.

Deficit cutting does not win votes

Is the president serious when he talks about fresh investments, with a federal deficit climbing to 1.5 trillion this year? As I said, may be he believes that he can find money, or may be there is a mix of belief and political calculation. The calculation being that, while the fiscal situation slowly deteriorates, it is unlikely to precipitate into an emergency between now and November 2012.

If Obama can continue to stay in the center, invoking jobs and trade and competitiveness, many independents, absent strong Republican contenders for the White House job, will come back to him, as some already have, if we look at the opinion polls.

Uphill battle for the Republicans

And this may be a good political calculation. If we look at the other side, for a Republican presidential candidate it will be tough to get overwhelming support on a platform of fiscal discipline alone. Diet and penitence do not bring huge crowds, let alone votes. If Obama can downplay the fiscal issues, with some token cuts here and there, as he has already done, while giving more pep talks like this last one to Congress, it will be hard to beat him in 2012, especially if the economy, (as opposed to federal finances), keeps getting a bit better, as it does.

Good politics, bad leadership

And so Barack Obama will be re-elected in 2012; and we shall have wasted another 2 years doing essentially nothing to fix the brewing fiscal crisis that, if unchecked, will lead to America’s demise as a great power.

This may be smart politics; but it is lousy statesmanship.

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