President Obama is holding a fiscal responsibility summit next week at the White House to talk about how to shrink the whopping budget deficit. That might seem like an unusual conversation to have right now — especially when the new administration has been busy expanding the deficit.
By the time all the stimulus bills and bailouts are counted, the federal deficit is likely to top 10 percent of the entire domestic economy. That's the biggest deficit since World War II. Couple that with the government's obligations when the baby boomers retire, and you've got a fiscally unsustainable problem — and one that's very hard to fix. Still, in almost every speech, Obama insists something has to be done.
"We will need to do everything in the short term to get our economy moving again, while at the same time recognizing that we have inherited a trillion-dollar deficit," he has said. "And we need to begin restoring fiscal discipline and taming our exploding deficits over the long term."
There are really two trillion-dollar deficits. One is a short-term problem caused by the recession. Then there's a long-term structural deficit caused by budget-breaking health care costs and the baby boomers' retirement. In an interview at the White House this week, the president's budget director, Peter Orszag, said that's why the administration wanted to hold this summit now.
"I think it is noteworthy that, in the midst of all the other short-term crises that we face, we are not letting the urgent get in the way of the important and we are sitting down to talk about this important issue," Orszag said.
Orszag added that a big part of Monday's meeting will be letting a lot of different voices be heard. One of those voices is expected to be that of Sen. Judd Gregg, the New Hampshire Republican who recently withdrew his name from consideration for commerce secretary. But he is also a leader on budget issues, and he has called the deficit problem a long-term fiscal tsunami.
"Our kids are simply going to get a country that's not affordable unless we do something substantive about the cost of entitlements," Gregg said recently. "We're looking at spending, under the entitlement programs, jumping to almost 30 percent of GDP, which would basically absorb almost all the savings that most Americans would have, and nobody will be able to afford a house or buy a car or send their kids to college."
Solving the problem will certainly require difficult choices, including raising taxes and cutting spending, Gregg has said. Although he had what he called irreconcilable differences with the president on the stimulus bill, he's ready to join hands with willing Democrats on the entitlement bill and jump off the cliff together. And he thinks on this issue, the president will find surprising levels of bipartisanship.
"I don't think there's any question we're ready to cooperate," Gregg has said. Senate Republican leader Mitch McConnell of Kentucky "has said very openly that he's ready to go. All we need is the president to continue the leadership that he's shown, which I congratulate him for."
About 90 people from both ends of the political spectrum are being invited to Monday's summit. Besides congressional committee chairmen and ranking Republicans, there will be liberal economists, labor leaders and well-known fiscal hawks. And that makes some on the left very nervous. They're worried that the summit could lead to deep cuts in Medicare and Social Security benefits.
Economist James Galbraith, on a conference call Thursday set up by the group Campaign for America's Future, called it "unfortunate that the White House chose to frame the issues of Monday's meeting" the way it has.
"Threatening, or appearing to threaten, the stability of Social Security benefits is not a constructive contribution," Galbraith said. "Its effect is to raise the anxiety of the working population for whom Social Security and Medicare represent an increasingly important part of their long-term future."
The politics are daunting, because the solution inevitably requires some to pay more and some to get less. Interest groups will line up to fight every change.
Robert Reischauer, former director of the Congressional Budget Office, is pessimistic. "This is going to be the hardest thing we've ever tried to do," he said. "It probably won't be successful unless there's some convincing external force, a gun at our head — interest rates rising rather significantly because foreigners won't lend us the resources we need. I'm skeptical that our political system right now is frightened enough about the long-run consequences of our current fiscal path that it can galvanize itself into action."
Right now, long-term interest rates — the price foreign investors demand in return for financing our debt — are rising fast, but they are still relatively low.
Orszag said that's why it's important to address this now. "If we roll forward five or 10 or 15 or 20 years and we fail to address these underlying structural deficits," he said, "we won't have that maneuvering room because creditors will not be willing to buy our debt at reasonable or at low interest rates."
That's just part of the argument Obama is likely to make on Monday as he turns his attention to dealing with this next crisis on his very long list.