Finally Some Straight Talk on the Deficit
Barack Obama and Hillary Clinton each said something smart about the budget deficit last week. Let’s hope Americans were listening.
While in Beijing, Clinton thanked the Chinese for buying our debt. At first glance, that wouldn’t seem like a very big deal; US officials have been presumably thanking them behind closed doors for years. But Clinton did it publicly, which means that it wasn’t just China’s leaders who heard her, but average Americans as well. That’s important because most Americans still don’t think of China as our bank: the country whose willingness to purchase US Treasury bonds allows us to run up massive deficits without short-term pain. When people in Congress or on TV talk about US policy toward China, they often conveniently ignore that. They propose that we pressure China to improve its human-rights policy, or to get tougher on Iran, or to devalue its currency. What Clinton was telling Americans—in an indirect way—was that we can’t pressure China to do squat. Yes, they need us: We’re a big market for their goods and we’re still a good place to invest. But they can find other places to invest more easily than we can find other investors. It’s better to be a global creditor than a global borrower, as Americans knew back in the 1920s when our investments propped up the economies of World War I-ravaged Europe.
What Clinton was telling Americans—in an indirect way—was that we can’t pressure China to do squat.
That’s not to say America should abandon all efforts to influence Beijing. But Clinton was sending a message that we should be more realistic about what we expect. Or else—if influence over China really matters to us—we should get much more serious about bringing down our national debt. We need to talk more honestly about the way our epidemic of borrowing weakens our power overseas. And in a shrewd way, Clinton did just that.
Barack Obama sent a shrewd message of his own about the deficit last week: He said his administration would cut the projected deficit in half by the end of his first term. Whether he can do that is anyone’s guess: It has everything to do with when the recession ends, and revenue starts flowing back into government coffers. But Obama was wise to make the pledge anyway, for two reasons. First, because if he’s serious about tackling the cost of entitlements—particularly Medicare, which contributes mightily to our long-term deficit—he’s going to have to spend a lot of time convincing people in his own party. Democrats are so used to hearing Republicans try to cut Medicare, Medicaid, and Social Security while at the same time enacting big tax cuts for the rich that many have come to think of the whole topic as a political Trojan horse. If we’re truly going to slow the growth of government health-care spending—which we have to do—it’s probably Democrats who must take the lead, because they won’t conflate cost-reduction with privatization, as George W. Bush did, and because they enjoy more public trust on the issue, and thus won’t be as vulnerable to political attack. With his pledge to cut the deficit last week, Obama laid the groundwork for that effort within his own party.
He also said something important to the GOP. Ever since George W. Bush left for Texas, Washington Republicans has been screaming about the horrors of budget deficits, even while maintaining their support for Bush’s tax cuts and the continued war in Iraq, which together dwarf the cost of Obama’s supposedly budget-busting stimulus plan. By promising to reduce the deficit in large part by repealing some of Bush’s tax cuts and winding down the Iraq war, Obama is calling their bluff. In the stimulus debate, Republicans tried to set up a binary choice: Democrats want more domestic spending; Republicans want to honor our sacred commitment not to leave our grandchildren in debt. That’s nonsense. In reality, the priorities of most Republicans go something like this: 1) Cut taxes, especially those paid by the affluent; 2) Spend money on defense and homeland security; 3) Honor our sacred commitment to our beloved grandchildren; 4) Spend money on domestic programs. That’s fine, but it doesn’t exactly make the GOP the party of fiscal responsibility. By publicly pitting Republican priorities No. 1 and No. 2 against Republican priority No. 3, Obama is laying that bare for Americans to see.
In the months ahead, if we’re very lucky, Republicans will be forced to rearrange their priorities or else stop preaching about how much they love their grandchildren, Democrats will start to see entitlement reform as a necessity, not a GOP plot, and all Americans will come to realize that the Chinese have us over a barrel. Are these epiphanies likely? Not really. But at least the president and his secretary of State are doing their part.
Peter Beinart is a senior fellow at the Council on Foreign Relations.