The Congressional Budget Office released its January 2011 Economic Outlook on Wednesday, and the news was…not good. While the economy showed continued signs of recovery, it will be several years before unemployment returns to a level resembling normal – unemployment won’t dip below 8% until after 2012 has come and gone. Of course, what many analysts and policy makers were looking for (beyond just the jobs outlook) was the CBO’s projections on the budget problem. While the numbers looked surprising – the deficit would return to 3% of GDP in several years time – they were baseline considerations, designed to allow Congressmen to better predict impacts of proposed policy, and as such were not grounded in a darker political context.
Obama talked about the deficit in his State of the Union Address on Tuesday, noting the gravity of the problem. But in the same breath, he called for further investment in several critical areas: green energy, education, and infrastructure. While he will no doubt continue to reiterate his argument for this spending as a means to ensure continued American competitiveness in a global environment, many will balk at the prospect this spending will have on the debt.
These concerns may be well founded in several respects – the debt, as the Chair of the Joint Chiefs of Staff pointed out, is a massive problem. But there are plans that can certainly solve the problem, if the necessary bipartisan support surfaces from a tense partisan atmosphere in Washington. The sobering news is that these plans will hurt. Major entitlement programs will see cuts, spending will be reduced, and revenues will have to increase from somewhere. Still, many experts remain hopeful that America will muddle its way through this mess, as it always has.
Regardless of what must be done on the national level (and obviously, something should be done, sooner rather than later), there is also a brewing crisis among the states. Traditionally, state budgets take a hit during recessions, as their revenues decrease with the economy and their outlays rise to finance unemployment assistance and other social welfare programs. And that problem certainly applies to the short term outlook for most states today – many states are slashing budgets, laying off workers, and warning of future cuts.
For some states, though, – states such as Hawaii and Oklahoma – the pension funds and retiree health care programs that make up longer term budgets disguise a sleeping dragon. Federal Reserve Chairman Ben Bernanke highlighted these challenges in recent testimony, explaining that many state pension funds and retiree health care programs are seriously underfunded, to the tune of several trillion dollars. Others, though, argue that Bernanke’s concerns are overstated – these are not the pension plans you’re looking for – and believe the outlook for states is manageable with some careful tweaks. While it is important to remember that these are long-term issues which don’t require an immediate fix, like the national debt the federal government now faces, judgment day can’t be postponed forever.
Regardless of where you stand on national or state debt issues, what everyone must have certainly realized by now is that debt issues will certainly come to define America’s political landscape in the coming years. It is, in some ways, the perfect issue to do so, for it encapsulates so many of our traditional ideological differences on government – size, competitiveness, and redistribution. As a result, the debate will be nothing if not furious. What will matter, though, is the quality and nature of that debate. It should be composed of exchanges of ideas and proposals, not loaded partisan rhetoric or carefully veiled insults. Nobody enjoys talking about debt…but since we’re going to have to, we might as well be civil while doing so.