With news today that the U.S. deficit hit an all-time high of $1.42 trillion in 2009, the debt is becoming too big of an economic and political issue to ignore. The White House is listening, as Politico reports that President Obama will put a spotlight on debt-fighting plans in his State of the Union address. How bad is it, and is the government taking the debt seriously? The administration has already floated one solution: using leftover money from the $700 billion bailout to cut down the deficit. While economic analysts puzzle over solutions, pundits debate whether this new focus is merely political posturing for the 2010 elections.
- 'Debt Problem Is Worse Than You Think,' is John Maggs's argument in the National Journal. It's not just that the government will have to figure out how to cut spending without damaging recession recovery; the Federal Reserve also has to raise the interest rates it lowered in bad times in order to prevent inflation. But as it does that, the cost of debt will also rise. Thus, "the two policy challenges of budget and the money supply converge," Maggs argues. "Simply put," he writes, "even alarmists may be underestimating the size of the problem, how quickly it will become unbearable, and how poorly prepared our political system is to deal with it." He thinks the deficit deserves more attention.
- Cynical on Obama Deficit Plans In their analysis for Politico, Mike Allen and Jim Vandehei evince a certain dubiousness regarding the administration's declarations: "All presidents promise deficit reduction--and almost always fall short. There is good reason to be skeptical of this White House, too, on its commitment." There is good reason, likewise, they point out, for the White House to promise such commitment; "Obama can help moderate Democrats avoid some tough votes in an election year and ... calm the nerves of independent voters." But Allen and Vandehei question whether the party of the "stimulus, the bailouts, the health care legislation and a plan to address global warming" can credibly demonstrate fiscal conservatism.
- Deficit Important, But Cut Obama Some Slack Andrew Sullivan begins writing that "for much of this year, I've been arguing that the Obama administration needs to pivot swiftly from health insurance reform to fiscal responsibility in the coming months." If Obama is now shifting focus to this pivotal moment, good--and critics should watch their words, Sullivan adds. "To treat the stimulus package as if it were something he just felt like doing--because he's a big government maniac--is a lie, a piece of propaganda that has seeped into the lazy Beltway desire to describe everything ... into the big government/small government, red-blue paradigm." Nor does he find the points about health care and green energy investment convincing--investment isn't the same as increasing entitlements:
The way in which cynical and amnesiac Republicans have tried to portray this as classic big government liberalism is a lie. You can debate the merits of each initiative, but this is obviously not an administration as fiscally reckless as the last one. Mercifully, they have a chance to show it in earnest next year. And to call the bluff of those Republicans yelling about spending while having absolutely no plans or ideas for cutting it.
- TARP Reassignment Plan Might Work Over at Capital Gains and Games, Stan Collender is unimpressed with Reuters blogger James Pethokoukis's assertion that reassigning TARP money to the deficit won't work. "You definitely can reduce the projected deficit and the debt by not spending funds that were projected to be spent," he argues. "That, in fact, is how you do it." That said, "a question should be asked about whether the Obama administration deliberately overestimated how much TARP would cost in 2010 so that it would be able to claim savings later in the year." Other administrations have also done this. "But regardless of whether it was intentional or fortuitous, not spending TARP money that had been projected to be spent will in fact lower the deficit and the amount of government borrowing compared to what otherwise would have been spent."