Fiscal Issues Lie at Heart of Preserving America’s Social Contract

In response to Martin Feldstein's "Forget the debt: its jobs that will define Obama’s future" published in the Financial Times. 

I wholeheartedly concur with Martin Feldstein that the Obama administration is clueless when it comes to policies that “encourage business investment, housing construction, small business hiring, stronger exports” and that these are essential to improved economic performance. Put differently, growth considerations must trump other objectives, instead of President Barack Obama’s track record of the reverse: social engineering over growth in health reform, the green agenda over growth in the Environmental Protection Agency, a union agenda over growth in trade and labour relations, and the list goes on.

But derelict deficit policies are at the heart of the problem: political spending desires have trumped growth imperatives. The US already displays a gross debt-to-gross domestic product ratio exceeding 90 per cent and, thus, has entered the zone of slower growth documented by Carmen Reinhart and Kenneth Rogoff. Worse, future deficits lead directly to a debt spiral and debt crisis that would cripple the economy and kill jobs.

The debt derives directly from the broken entitlement programmes. Social Security, Medicare and Medicaid are all bleeding red ink and will not survive in their current form. It is a dis-service to future seniors and needy Americans to not move to a durable social safety. It is a greater dis-service to let these broken programmes feed a debt explosion that undermines the US economy and costs jobs. So, in the end, President Obama will and must be judged on his handling of the deficit and debt. Fiscal issues lie at the heart of preserving the social contract in America. Fiscal issues lie at the heart of a more prosperous future – jobs. Mr Obama has spilled many words over these issues, but spent no political capital and has not reached a deal. He must.

The writer is president of the American Action Forum and a former director of the Congressional Budget Office and commissioner with the Financial Crisis Inquiry Commission

This originally appeared on 7/25/11 in the Financial Times.