Obama’s Budget Falls Short, Senators Have Plan?

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WASHINGTON – Barack Obama just went to Silicon Valley and Oregon to have another pep talk with IT entrepreneurs about innovation and how to link up government and the private sector to outsmart global competitors. He drafted Paul Otellini, Intel’s CEO, to be part of his panel on jobs and competitiveness headed by another heavyweight: GE’s CEO Jeff Immelt. All this looks nice politically. The president is making all the appropriate noises to the bastions of American capitalism. But many business people nationwide argue that the best way to improve the business environment would be to make serious efforts to balance the budget and reduce the national debt; while at the same time limiting regulations and reducing corporate tax rates.

Obama silent on real fiscal reform

But here, on this truly strategic link between modern pro-growth economics and sound fiscal policies nothing much from President Obama. Lacking a serious commitment to create a better fiscal environment for business to flourish, the recent pro-innovation exhortations by the president ring a bit hollow. And, on this crucial issue of real (as opposed to cosmetic) fiscal reform, as things look now, do not expect much more.

Indeed, judging from the White House budget proposal for fiscal 2011-2012 just presented to Congress for debate and eventual vote, while there are real spending cuts envisaged, essentially the White House decided to dodge the difficult part: and that is entitlement spending reform.

Entitlement reform?

Let’s no kid ourselves: that’ s where the real money is. Sure enough, in an enormous budget, (approaching 4 trillion), you can find literally thousands of possible items to trim –and there is quite a bit of trimming in Obama’s budget request– but if you do not seriously address entitlement reform, much of the rest is posturing and feel good politics. Translated into English: It Is Not Serious.

Indeed, Erskine Bowles, co-chair of the presidential “Deficit Commission” established by Obama himself in February 2010 that issued its recommendation on spending cuts in December 2010, commented to The Washington Post that:

“The President’s budget goes nowhere near where they’ll have to go to resolve our fiscal nightmare”

Chew on that for a moment: “nowhere near“, “our fiscal nightmare“. These are not polite, diplomatic words. And who is saying this radical stuff? Well, a Democrat and former White House Chief of Staff to President Bill Clinton.

So much for Obama’s seriousness on fiscal reform.

Good politics, bad leadership

But why dodge entitlement reform? Probably out of political calculation. The deficit and the debt –fueled in large part by automatic increases in entitlement spending– are really major issues and they are getting worse all the time; but they have not triggered a government funding crisis, not yet anyway. And so Obama may have decided to avoid the big issues in the remaining two years of his term, as he starts gearing up for a second White House bid. Probably good politics; but really bad leadership, as the country needs a fiscal strategy that would look credible in terms of bringing deficits and debt down to sustainable levels within a reasonable time. And this can be done only by addressing entitlement spending reform.

No crisis, but getting worse

Again, the country is not in a fiscal emergency “right now”. But, at this rate of deficit and debt accumulation, it will get there soon. The more we wait, the worse the conditions and the more difficult it will be to confront the problem. Unless America wants to become another Japan or Italy, countries diminished by the heavy burden of debt and debt service; countries that almost by definition have little discretionary money left and thus very little policy initiative and limited international standing.

We have a blueprint

As for a blueprint to seriously reduce public spending, including the critically important, massive entitlement programs –Medicare, Medicaid and Social Security– that represent the bulk of federal spending, the president has in hand the above referenced “Deficit Commission” Report, aptly titled “The Moment of Truth”. This Report was presented at the end of 2010 by Erskine Bowles and Alan Simpson, the co-chairs entrusted by Obama himself to come up with long term solutions to control spending and reducing imbalances that doubled in just a few years.

This Bowles-Simpson document was and is a decent, credible deficit reduction ”Plan”. They came up with their set of solid recommendations. They are strong but not revolutionary measures, aimed at changing the direction of public spending through serious entitlement reform, some tax increases, cuts in defense spending and in the rest of the non defense discretionary budget.

Bowles-Simpson Report never got off the ground

As we know, the plan got some lift but it never got airborne. The support from within the Commission members themselves in the end was noticeable but not overwhelming. And this meant “dead on arrival” regarding any chances of translating the Report’s policy recommendations into legislation.

Obama will not lead

In all this, Obama’s support for the recommendations of his own “Deficit Commission” could have made a difference. Instead the President decided to distance himself. He looked at the Report, he said he liked a few things in it and left it at that. For him America’s “Moment of Truth” may indeed come at some point; but not just now.

Barack Obama could have decided to lead on the deficit; but he preferred not to, probably because he thinks that a serious discussion on entitlement reform politically is too complicated and controversial and because he thinks that he can win reelection in 2012 without fighting this battle for the next two years. And so Bowles and Simpson went back home and the whole Deficit Commission work was basically forgotten.

Right now: semi-chaotic situation

As for governing America, not much is happening that we could call inspiring, if we are looking for a credible sense of direction aimed at improving the economic base, while addressing the fiscal imbalances. Right now, with divided government, there is a semi-chaotic situation in which the Congress, (House Republican, Senate slim Democratic majority) and the President, (Democrat) have to agree on spending for the rest of the current fiscal year 2010-2011, (as the Congress had failed to pass proper appropriations last year), while soon there will be have to be a vote on increasing the national debt. This increase will have to happen; but it is politically radioactive. The more conservative House Republicans who just came to Washington after the November 2010 vote on a mission to cut government do not want to raise the debt ceiling without major spending cuts. But, at some point, unless they want to shut down the US Government, something will have to be done; on what terms, so far it is not clear.

New 2011-2012 Budget offers little comfort

And the new 2011-2012 Federal Budget just presented that will kick in on October 1 shows that Barack Obama will push pro-economic growth policies, counting that this would look good in terms of public approval, while he proposes spending cuts here and there to show that he is mindful of our fiscal predicament; but without entering the politically treacherous ground of serious entitlement reform — that is to say without addressing the core issues that really make a difference.

Bipartisan efforts in the Senate?

In all this there is just a little bit of good news. There is some hint of possible bipartisan real talk that started a while ago in the Senate. In off the record, off site negotiations a small band of Democrats and Republicans have started talking about real fiscal reform. These informal talks, taking place outside the statutory fora of Budget and Appropriations Committees, are led by Senators Mark Warner, Democrat of Virginia and Saxby Chambliss, Republican of Georgia. They managed to add the Senators that were members of the “Deficit Commission”: Kent Conrad and Dick Durbin, (Democrats and very senior), and Tom Coburn and Mike Crapo, (Republicans). Whatever is going on, for the moment, it amounts to informal, off the record conversations.

Can these Senators resurrect and use the Bowles-Simpson Report?

Will these Senators, building on the Bowles-Simpson Report, manage to produce a meaningful spending cuts blueprint that will have a chance of surviving through the almost impossible journey of Congressional scrutiny, leading to a final presidential signature, given the acrimonious, confused climate and a President who has no appetite to get in front of this debate and lead? Who knows.

Still, this stirring indicates that the Bowles-Simpson Report, while now almost forgotten, did plant a civic consciousness seed in some lawmakers, prompting them to do something. Let’s hope that this seed will grow.

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