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  How to Keep the $2 Trillion Promises: Obama and the Ballooning US Debt

How to Keep the $2 Trillion Promises Obama and the Ballooning US Debt

By Gabor Steingart

Part 2: A New Chapter in American Social Welfare?

An exploding public deficit also does not bode well for the future of the social security system. Contrary to what many Europeans believe, the United States does have a social welfare system funded by taxes and allocations. All working Americans pay about 7.5 percent of their income into the social security system, which provides pensions and health insurance for retirees, and their employers pay about the same amount into the system.

The financial outlook for Social Security and the government health insurance system, Medicare, are bleak, as they are in Europe. When all baby boomers reach retirement age, Social Security benefit payments will have increased from 9 percent to about 20 percent of GDP. Obama's financial experts have advised him to defuse this time bomb in the government budget instead of making it even worse by injecting new risks.

The new president can hardly expect any tailwind from the economy. A wave of layoffs has begun to accelerate at an incredible rate, destroying 17,000 jobs in January, 62,000 in June and 240,000 in October. Experts say that America could see next year's unemployment rate rise to twice the 2007 rate.

All of these figures combine to form a horrific scenario for the future treasury secretary. Because current tax revenues will decline as a result of the recession, he or she will face the difficult combination of growing expenditures and declining revenues, so that the only variable still capable of being influenced will be newly promised expenditures.

Although money is the deciding factor in the Democratic camp these days, it is not the only one. The debate also revolves around the fundamental tenets of political strategy. Should the Democrats be bold, ride on the coattails of a historic landslide and open a new chapter in the history of the American social welfare state built by former Presidents Franklin D. Roosevelt and, in the 1960s, Lyndon B. Johnson?

Pressure from the Progressives

Or should Obama move cautiously in his first term, especially in a country that has traditionally greeted strong government with sentiments ranging from skepticism to hostility? To this day, many citizens treat as dogma former President Ronald Reagan's mantra that government "is not a solution to our problem, government is the problem." This popular sentiment led a formerly left-leaning Governor Bill Clinton to quickly turn into a pragmatist as president, making allowances for what he called the "silent majority."

The proponents of a progressive agenda are already building an enormous wave of pressure. Senator Edward Kennedy, who has been one of Obama's most prominent supporters, is calling for speedy implementation of health care policy promises made during the campaign. "The cost will be substantial, but the need for reform is too great to be deflected or delayed," Kennedy wrote in the Washington Post.

A colorful and vocal coalition of union leaders, senators and experts, like this year's winner of the Nobel Prize in Economics, Paul Krugman, support a policy of major steps. Democratic financial leaders, like Senator Max Baucus, the chairman of the US Senate Committee on Finance, are also eager to see quick action on health care. The government, says Baucus, must take over the costs and risks of illness from citizens and businesses quickly. "Now is the time."

The $150 billion infrastructure program Obama promised in the campaign will also be difficult to dispense with. It is the Democratic answer to the disintegrating public sector in the America of George W. Bush.

The infrastructure program is designed to repair roads and bridges, install subway systems and revolutionize the energy efficiency of major cities. It is also expected to create jobs. A potential director of such a program already exists: Bruce Katz, a vice president with the privately funded Brookings Institution, a Washington think tank. Katz's vitalization program for urban regions is called "Blueprint for American Prosperity."

Overall, the pursuit of such policies could end up harming the Democrats, say Democratic economic advisors like Gene Sperling.

But slashing the government programs Obama promised during the campaign is no less problematic, because he owes his victory to the historically high support from African Americans and Latinos. Nowhere is the share of people without health insurance higher than in these two groups and many of them love what other Americans hate: big government.

Developing 'Sustainable Capitalism'

They are offset by another group: cautious blue-collar and white-collar workers. These voters, slightly right of center, expect seriousness, not new record debt. Bill Clinton is still their hero, and they have fond memories of those days of high economic growth, lower taxes and government surpluses during his administration.

Conservative America is just waiting for the opportunity to accuse the Democrats of megalomania when it comes to fiscal policy. "I am pessimistic about whether our next president and the savants in Congress can deal with the massive economic issues we face," Harvey Golub, the former CEO of American Express, wrote in the Wall Street Journal on the day after the election.

Strong political supporters of Obama, like former Vice President Al Gore, are calling on the new administration to think in terms of long-term responsibility, when it comes to both the environment and economic policy. "We must develop sustainable capitalism," Gore wrote after the Democratic victory.

Gene Sperling has also warned persistently against overconfidence. The same thing, just on the opposite end of the political spectrum, happened to the conservatives under Bush after their 2004 election win, says Sperling. They believed in what Bush advisor Karl Rove called a "permanent Republican majority." And, says Sperling, they misunderstood the election as a mandate to privatize the social safety net.

Suddenly the Republicans found themselves trapped in their own ideological definitions, prompting Rove advise his party not to repeat the same mistakes.

Translated from the German by Christopher Sultan