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Christina Romer Says: Obama State of the Union Speech Should Focus on Deficit

I disagree. Focusing on the deficit is setting himself up for failure unless and until there are Republicans who actually care about reducing the deficit--and I don't see that happening until financial markets start to seriously squawk, and they ain't squawking right now.

Christina Romer:

Obama State of the Union Speech Should Focus on Deficit: My hope is that the centerpiece of the speech will be a comprehensive plan for dealing with the long-run budget deficit. I am not talking about two paragraphs lamenting the problem and vowing to fix it. I am looking for pages and pages of concrete proposals that the administration is ready to fight for.... The need for such a bold plan is urgent — both politically and economically. Voters made it clear last November that they were fed up with red ink. President Obama should embrace the reality that his re-election may depend on facing up to the budget problem.

The economic need is also pressing. The extreme deficits of the last few years are largely a consequence of the terrible state of the economy and the actions needed to stem the downturn. But even with a strong recovery, under current policy the deficit is projected to be more than 6 percent of gross domestic product in 2020. By 2035... we will be looking at deficits of at least 15 percent of G.D.P. Such deficits are not sustainable. At some point — likely well before 2035 — investors would revolt and the United States would be unable to borrow. We would become the Argentina of the 21st century.

So what should the president say and do? First, he should make clear that the issue is spending and taxes over the coming decades, not spending in 2011. Republicans in Congress have pledged to cut nonmilitary, non-entitlement spending in 2011 by $100 billion (less if recent reports are correct). Such a step would do nothing to address the fundamental drivers of the budget problem, and would weaken the economy when we are only beginning to recover. Instead, the president should outline major cuts in spending that would go into effect over the next few decades, and that he wants to sign into law in 2011.

Respected analysts across the ideological spectrum agree that rising health care spending is the biggest source of the frightening long-run deficit projections. That is why the president made cost control central to health reform legislation. He should vow not just to veto a repeal of the legislation, but to fight to strengthen its cost-containment mechanisms. One important provision of the law was the creation of the Independent Payment Advisory Board, which must propose reforms if Medicare spending exceeds the target rate of growth. But the legislation exempted some providers and much government health spending from the board’s purview. The president should work to give the board a broader mandate for cost control....

Finally, the president has to be frank about the need for more tax revenue.... The only realistic way to close the gap is by raising revenue. Some of it can and should come from higher taxes on the rich. But because there are far more middle-class families than wealthy ones, much of the additional money will have to come from ordinary people. Since any agreement will have to be bipartisan....

AGAIN, the fiscal commission has made sensible proposals... cuts tax expenditures... make the system simpler, fairer and more efficient.... Limiting the exemption of employer-provided health benefits... a tax on polluting energy....

None of these changes should be immediate. With unemployment at 9.4 percent and the economy constrained by lack of demand, it would be heartless and counterproductive to move to fiscal austerity in 2011.... But legislation that gradually and persistently trims the deficit would not harm the economy today. Indeed, it could increase demand by raising confidence and certainty.

The president has a monumental task. It’s extremely hard to build consensus around a deficit reduction plan that will be painful and unpopular with powerful interest groups. The only way to do so is to marshal the good sense and patriotism of the American people. That process should start with the State of the Union.

UPDATE: Matthew Yglesias points out:

Christina Romer’s Clever Op-Ed: [D]rill down into the details of the column... it looks very sly.... [S]he’s... saying that Barack Obama should double-down on the progressive agenda and define the progressive agenda as the key to deficit control. I’m not sure that’s sound political advice, but it’s pretty reasonable policy advice. Then note that in the penultimate graph she returns to the point that “With unemployment at 9.4 percent and the economy constrained by lack of demand, it would be heartless and counterproductive to move to fiscal austerity in 2011.” And indeed it would.