CFR.org has just posted a First Take I did on President Obama’s speech today at George Washington University on how to put America’s fiscal house in order. The upshot: Obama’s speech was more a political document than a budgetary one. Obama shied away from proposing significant changes in entitlement programs even though he noted that they consume a vast chunk of federal spending and that rising health care costs are a major driver behind the growth in spending.
But the speech did effectively contrast the competing visions Republicans and Democrats have for America’s fiscal challenge. He painted Republicans as reckless and radical in using deficit reduction as a means of “changing the basic social compact in America.” In comparison, Obama wants to take a “more balanced approach” that envisions living “within our means while still investing in our future.”
One passage in Obama’s speech caught my eye because it underscores how our current fiscal path is unsustainable:
By 2025, the amount of taxes we currently pay will only be enough to finance our health care programs, Social Security, and interest we owe on our debt. That’s it. Every other national priority—education, transportation, even national security—will have to be paid for with borrowed money.
As the economist Herbert Stein liked to say, things that are unsustainable tend not to be sustained.
More generally, Obama’s speech is one of the best short summaries of how America got into its current predicament, why all fixes are painful, and why every American should care that we solve our fiscal woes before the bond markets force us to. Which makes me all the sadder that the president chose to give this speech on Wednesday afternoon when no one would be watching.