Matt Miller on Our Debt Problem

Matt Miller argues that the Clinton experience shows that the debt projections making the rounds are unlikely to come to pass:

As a debt worrywart who devoured one of Pete Peterson’s doomsday books on my (first) honeymoon, and who came to Washington to help balance the budget in the 1990s, I take a back seat to no one when it comes to deficit hawkery. But the current panic over the national debt is a little mad. Yes, it’s a fine thing that President Obama is naming Alan Simpson and Erskine Bowles to head up the fiscal commission he’ll unveil Thursday. And Republican glee and Democratic fear over the political fallout from trillion-dollar deficits are understandable. But, at least for now, the policy consequences are modest and manageable.

How can I say that? Because even the most debilitating debt is racked up only one year at a time. And that means the staggering $9 trillion in fresh debt that President Obama has projected over the next decade is only a number on paper for the moment. If they came to pass, these levels of debt would be country-wrecking, next-generation-crushing and downright wrong. Is the president’s forecast of such debt proof of the White House’s unwillingness to lead on hard choices? You betcha. Does it mean we’ll actually incur this debt? In a word, no.

The beginning of wisdom here is to remember that what “everyone knows” about the economy often turns out to be wrong. I was an aide in the room when respected economists on Bill Clinton’s team told the president in 1994 (as has been reported elsewhere) that he couldn’t possibly seek to balance the budget any faster than in seven to 10 years. Reducing government demand more swiftly might capsize the economy! Three years later, the budget was in surplus and the economy was humming. The moral: Always balance the advice of experts with the counsel of common sense.

As someone who devoured Matt Miller’s The 2% Solution (not on my honeymoon, however… that book was Harry Potter and the Order of the Phoenix), I’m an admirer of his fluent writing and his nimble political mind. But I fear his essay gives the impression that the deficits of the early 1990s fixed themselves, and that the dire warnings being issued by everyone from Ross Perot to the CBO were, in retrospect, alarmist over-reactions.

In fact, that narrative misses two key pieces. First, both parties made enormous political sacrifices to close the budget gap. George H. W. Bush famously violated his “read my lips” quip with the 1990 budget deal–a promise worth breaking, but it arguably cost him reelection–while the early tax-raising Clinton budgets were a major cause of the 1994 Republican sweep. Second, without significant upward pressure on spending coming from entitlement costs, the partisan gridlock of the mid-90s allowed the growing economy to eliminate the deficit without the additional challenge of covering substantial new government spending.

Neither of these facts have real parallels today. On the political side, President Obama’s proposed fiscal commission is laudable, but toothless. As Miller rightly points out, Obama is by every indication still sticking by his pledge not to raise taxes on 95% of Americans, which he is doomed to rescind if he is to have any chance of addressing the deficit crisis. While his FY2011 budget cuts $2 trillion off the 10-year deficit, the deficit remains at 4.5% of GDP even with OMB’s rosy economic projections, an unsustainable level that should have rendered the budget unfit for release in the first place. And yet President Obama is practically Thomas More next to a GOP that voted against the fiscal commission it co-sponsored, touts stimulus spending it opposed, and is taking an absolutist position not just on taxes, but also on Medicare, the biggest driver of our long-term debt problem.

On the policy side, we no longer have the luxury of staying gridlocked and growing our way out of the problem. Revenues are down not just due to the recession, but also to a series of tax cuts that we couldn’t and can’t afford (the first Bush, one should recall, left Clinton with a budget that already had many of the tools necessary for controlling spending; the second Bush left Obama with a budget that had gutted most of those tools). And Medicare spending is only going to grow faster the longer we wait. So a “do nothing” Congress this time around is part of the problem, not the solution.

I hope Matt Miller is right that solutions will be more forthcoming than we expect; economics is not called the “dismal science” for nothing, after all. But let’s not the mistake the enormity of the problem here as a purely political one. Yes, Obama needs to show actual leadership. Yes, the GOP needs to put the welfare of the country ahead of its short-term political gains. But the failure of our politics is at its core a failure to address a real and growing problem. No matter how brave and chummy our leaders become, they still must cut some very popular programs and raise some decidedly unpopular taxes. And soon.