All the talk in Washington is about the slowing economy, the threat of another recession, the government’s growing debts and the looming insolvency of Social Security and Medicare.
If anyone still believes things can’t get much worse, brace yourself. They can, and they will.
The Gallup Poll said last week that nearly 80 percent of Americans they polled between June 9 and 12 were “dissatisfied with the nation’s direction.” Not surprisingly, their deepening dissatisfaction mirrors a 10-point plunge in Gallup’s economic-confidence index.
Don’t look to the White House and President Obama for a plan to get our country out of this mess. In the past few months, many of his top economic advisers have left their jobs and returned to the safety of their tenured teaching posts in academia.
Free from the tightly controlled political constraints of the West Wing, Lawrence H. Summers, who headed the president’s National Economic Council, urged his former boss last week to increase payroll-tax cuts for all workers from 2 percent to 3 percent and expand it to include each employer’s matching tax share.
In an analysis for Reuters last week, titled “the Jobs Crisis,” a newly critical Mr. Summers said, “The fraction of the population working remains almost exactly at its recession trough and recent reports suggest that growth is slowing.”
“Beyond the lack of jobs and incomes, an economy producing below its potential for a prolonged interval sacrifices its future. To an extent that once would have been unimaginable, new college graduates are this month moving back in with their parents because they have no job or means of support.
“And reduced incomes and tax collections at present and in the future are the most important cause of unacceptable budget deficits at present and in the future.”
Mr. Obama has no full-blown economic-growth plan in the works to get the economy moving again - beyond hoping it will turn around on its own - without any new stimulus that Mr. Summers says is needed to pull the country out of its renewed slump.
Meantime, with the U.S. Treasury descending deeper into debt - a whopping $1.6 trillion in this fiscal year alone - the administration has just six weeks to strike a deal with Congress to cut more than $2 trillion in spending over the next 10 years.
That’s the amount Treasury Secretary Timothy F. Geithner says the revenue-sapped government must borrow to pay its bills. But to do so, Congress must raise the $14.3 trillion debt ceiling by the same amount. House Speaker John A. Boehner, Ohio Republican, says it’s no deal unless the White House agrees to $2 trillion in cuts and, possibly, a great deal more.
To say that both sides are running out of time is putting it mildly, because the House and Senate will be on a summer break for at least three weeks over this period. Such is the lethargy of Congress in what is turning into a political game of chicken.
By far the largest hurdle in these negotiations is entitlements, which represent the bulk of the federal government’s future financial liabilities. Medicare’s trust fund finances are expected to begin drying up in 2024, and Social Security will be insolvent by 2036.
It will be impossible to come up with a solution to either program’s financial crisis within the coming weeks. More likely, any budget deal will set broad, new expenditure and revenue targets for Congress to reach based on benefit, age-eligibility and other structural reforms.
To save Social Security, Congress would be wise to revisit the late Sen. Daniel Patrick Moynihan’s plan to let younger workers invest a fraction of their payroll taxes in a broadly diversified stock and bond retirement fund they would own.
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