It's Time for Obama to Tell the Hard Truth

It has long been an unwritten rule of political professionals: Thou Shalt Not Demand Sacrifice of the Voters. Do not propose to raise taxes (remember what happened to Walter Mondale in 1984, when he won just one state and the District of Columbia against Ronald Reagan). Never sound gloomy about the future (remember Jimmy Carter and malaise). Always be upbeat (remember Ronald Reagan, again). And never, ever propose to cut the big entitlement programs, Social Security and Medicare. Those senior citizens turn out to vote!

The pros—the advisers and well-paid political consultants—might permit their clients to say a few words about "hard choices" in their uplifting speeches about the greatness of the people. And when it comes time to propose a budget, the president's handlers will tolerate—or imagine—projected savings and revenues from unspecified sources. But that's all for the "out" years, as the lawmakers call them—a time of truly hard choices and real sacrifice that never seems to come.

But what happens when the time really does come? When the debt is piled too high, when the economy threatens to sink under the weight of accumulated obligations that have been put off too long? There are more than a few signs that those times are not so far away for the federal government, and that in some big (and big-spending) states, the day of reckoning is now.

President Obama's new federal budget proposal projects, with unusual clarity, that the trillion-dollar-plus federal deficits piling up during the current recession are not just a temporary condition necessitated by hard times, soon to be cured by a return to prosperity. Rather, the red ink threatens to drown us. For many years, federal spending remained about 20 percent of the overall economy. But under Obama it's now a quarter of the economy. The national debt has grown to more than 50 percent of GDP, and according to the nonpartisan Congressional Budget Office, it could plausibly approach 100 percent of GDP by 2020—a figure not reached since World War II. Unless something drastic happens—like significant tax increases and cuts in those sacred entitlement programs—the cost of the government will continue to outrun revenue by staggering margins.

Well, so what? Can't the government keep on borrowing? During wartime and deep recessions the federal debt has soared and then settled down once peace and prosperity returned. In America, the political classes have always been saved by growth—the wondrous engine of the American economy that has spared the politicians from having to face up to dire choices in taxing and spending.

But a new era of high economic growth is not inevitable. The Next Big Thing—say, the long-awaited green revolution in high tech, alternative energy sources, and the like—should not be confused with the Next Sure Thing. What if government spending really does outrun growth in a way that chokes the economy before it can take off again? Will the Chinese—our rivals for world economic supremacy and the power that goes with it—indefinitely support our profligate ways by buying our debt?

The federal government can, it's true, always print more money. Not so the states, many of which also have balanced-budget requirements. Dominated by the political power of public-employee unions demanding generous pensions and benefits, big state governments—California, New York, New Jersey—are starting to go over the fiscal cliff. California was driven to pay some of its obligations with IOUs, not cash. There are dark mutterings about "failed states"—state governments that are utterly dysfunctional.

Even the federal government faces a grim prospect relatively soon. Simply printing money means high inflation. The seniors who saw their fixed income eaten away by the double-digit annual price hikes of the late '70s and early '80s are mostly gone by now. But their children, as they now approach their golden years, might remember the pain of paying for mortgages on those new starter homes with interest rates around 14 or 15 percent—and that sinking feeling of income falling behind in a race against rising costs. It's hard to imagine America with hyperinflation—like the desperate scenes of people pushing wheelbarrows of nearly worthless cash in pre-Hitler Germany. But unless government acts to put its own house in order, inflation becomes a kind of default switch, an easy way out that makes the problem worse in the long run.

What are the choices facing our leaders? The government can try to keep on borrowing, but that risks driving up interest rates and crowding out the private borrowing so essential to keeping the economy going and, with luck, expanding. One lesson of the recent financial crisis is that things can go bad quickly: investors may wake up one day and decide they don't want U.S. Treasury bonds. Interest rates could soar. Other troubled countries, facing similar accumulations of debt, might suddenly help to drag us down. Worries over huge debt burdens in European countries like Greece, Portugal, and Spain last week sent the Dow Jones industrial average down 2.6 percent in just one day.

Another option: the government can dramatically raise taxes—and thus truly stifle economic growth. Or—better idea! —the federal government can start now, through a prudent mixture of spending cuts and tax hikes, to get control of its financial future and avoid, or at least mitigate, a dreary fate of high inflation and/or high-taxation stagnation. (For more detail on the hard choices we need to make, see Robert J. Samuelson's column.)

But that step, of course, requires leadership: real inspiration, the kind that gets people to do what they instinctively resist—the sort of boldness unfamiliar to the modern political scene. The real challenge here is not economic but political: conditioned by years of Washington slipperiness and blather, most voters are at once cynical about politicians and bureaucrats while expecting government to cater to their needs and protect their "rights." Breaking the cycle of dependency and distrust is a tall order. It requires a politician willing to rise above the depressing laws of political survival, as they are laid down by the pundits and political operators.

Who or where is such a leader? Not in Congress, by all available evidence, or in the statehouses or governor's mansions. President Obama might be that man. But so far, he has not been. It is worth rewinding the videotape to examine how he has flirted with the truth, but then shied away from embracing it.

Obama has some of the qualities of a stern preacher. To his critics he can even seem a bit of a scold, self-involved, and above it all. In his Inaugural Address, he echoed Paul's Letter to the Corinthians, telling Americans the time had come to "put away childish things." In his first address to Congress a month later, he inveighed against piling up debt: "We have lived through an era where too often short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election…All the while, critical debates and difficult decisions were put off for some other time or some other day. Well, that day of reckoning has arrived, and the time to take charge of our future is here."

Bold words, but the speech was notably lacking in specifics. When the time came to tackle the hardest reform—health care—he waffled. He proposed universal, or nearly universal, health care, extending insurance or benefits to as many as another 30 million Americans. At the same time, he told Americans who have insurance and like it that "nothing will change." He promised that health-care reform would not add to the federal deficit.

It's possible to have universal health care, to have high-quality health care, to have the freedom to choose your own doctor, and to save money on health care, but it is not possible to do all those things at once. You don't have to be a policy expert to know that Obama and Congress were not going to be able to deliver on his promise. The public right away sensed that the president wasn't leveling with them. As Congress began the long haul of trying to shape a health-reform bill over the summer—and the president essentially lay low—conspiracy theories began to pop up. Congress was going to create "death panels"! Obama finally stepped in to quell the rumor-mongering in September, but by then it was almost too late. Public suspicions about health care persisted in polls showing less than half the country favoring reform.

Health-care costs have been steadily rising at far more than the rate of inflation, consuming ever larger chunks of the economy: 12 percent in 1990, and projected at 17 percent in 2010 and 25 percent in 2025. There are ways to slow the rate of increase, but the first step is to be honest about it. America needs to spend a smaller percentage of its health dollars on patients in the last six months of life. This does not mean "death panels" voting to throw Granny in the snow. But it does mean more hospice care at the end of life rather than taking "extraordinary measures" that are routine in so many hospitals. Obama has tried to slide around this uncomfortable truth, talking of "waste and inefficiency" and somewhat vaguely proposing a half-trillion-dollar cut in Medicare spending in future years. But he has not begun to have a frank discussion of what that means or requires.

He has been similarly dodgy about the economy. In his State of the Union address at the end of January, he emphasized job creation. "Jobs, jobs, jobs!" is the standard political refrain. But Obama failed to explain that there is only so much the federal government can do to create jobs, and it's already done it. A year ago, Congress voted to spend nearly a trillion dollars to "stimulate" the economy, mainly by giving money to the financially strapped states so they wouldn't have to lay off public employees. Congress can probably spend $100 billion more to try to nudge down the stubborn unemployment rate, hovering around 10 percent. But the hard truth is that the real role for the government right now is to figure out how to take federal money out of the economy as it begins to expand again (by a 5.7 percent annual rate last quarter). The Federal Reserve has reduced interest rates to nearly zero while buying up toxic assets by the trillion. Now it must begin to slowly pull back—very carefully, as liberal economists note—to avoid a double-dip recession. But Obama needs to be strongly and publicly defending the independence of the Federal Reserve to take the necessary steps. Instead, he has succumbed to the populist pressure to show that he is willing to "fight" the private banks, at best a red herring or sideshow to the main event over at the Federal Reserve.

So what else, specifically, does Obama need to do? He made a start by announcing that he would appoint a bipartisan commission to recommend ways to reduce the deficit. But he needs to do more: he needs to make deficit reduction his No. 1 job—laying out for the American people how Social Security must be reformed by pushing back the retirement age and taxing benefits for the wealthy, and why Medicare spending must be cut by changing the basic way doctors are paid, to discourage them from doing unnecessary but expensive procedures. He needs to be completely honest about the costs and to take personal involvement in spelling out the relatively small sacrifices seniors will have to make for the benefit of their children and grandchildren. He'll also have to propose some tax hikes: perhaps eliminating the mortgage deduction and adding a value-added tax.

Political experts—an ever-expanding population—will unanimously think these suggestions are naive. They will cite the public scorn heaped on Carter, the last president who even tried to ask for sacrifice, and recall that Reagan breezed to two terms by invoking "morning in America." But Carter was sanctimonious, and Reagan was lucky as well as inspiring—he had a tough Fed chairman, Paul Volcker, to beat inflation, and Reagan's successor, George H.W. Bush, was left to deal with the deficits. There is no end to fighting terrorists and repairing failed states. More to the point, the public senses that something is deeply wrong, that the American birthright of believing in a better future for your children is in jeopardy.

It is also true that liberal democracies are notoriously unable to demand sacrifice from their citizens, outside of time of war. But political leaders, and the experts who advise them, should contemplate that countries that destroy their economies will cease to be liberal democracies.

Political pros in Washington (or anywhere else) have a condescending attitude to voters, a little like Jack Nicholson in A Few Good Men ("You can't handle the truth!"). And voters, at least those who watch cable TV, must think the political pros are back in middle school firing spitballs. Telling voters the truth does not have to be melodramatic. Last fall, the Conservative Party in Britain toyed with calling for sacrifice, essentially invoking the spirit of Winston Churchill's "blood, toil, tears, and sweat" speech from World War II. The Tories got a short bump, but then dipped in the polls. Voters—certainly American voters —don't buy the endless "war on" analogies (war on drugs, war on crime, war on terror), and they won't quickly rally around a war on debt. But they just might appreciate a politician who skips the slogans and tells them the truth.