As published for The Wall Street Journal on February 8th, 2010:
Tax increases can’t plausibly address the coming entitlement crisis.
Moody’s Investors Service’s warning last week that the AAA credit rating of the United States is in jeopardy raises fresh concern about the nation’s fiscal health. The question to ask about the president’s eye-popping budget, also rolled out last week, is whether it prepares the country for its future—or shackles it to past decisions that our leaders would rather not confront.
President Obama’s blueprint gave us a federal budget deficit for fiscal year 2010 of $1.6 trillion, about 10.6% of GDP. While one expects bigger budget deficits in a downturn, the administration expects the deficit and debt buildup to persist. By 2013, it forecasts that deficits will bring about a debt-to-GDP ratio of 72%, unprecedented in our experience except during a major war.
The problem is spending. Despite Mr. Obama’s words about restraint, the new budget proposes more spending—1.8% of GDP for 2011 to be precise—and a higher level, roughly one percentage point of GDP higher, in subsequent years.
Debates about the budget traditionally revolve around these numbers. There is another way to look at the federal budget, however, and that is to focus on its effect on our economic health, not just the government’s fiscal health. Focusing on economic health means setting our sights on productivity growth—our future living standards.
To understand what this means, consider the famous “kitchen debates” between Soviet President Nikita Khruschev and Vice President Richard Nixon in 1959 about the merits of capitalism and socialism. Nixon famously pointed to color television as a milestone in American innovation. The Soviet leader replied by trumpeting his nation’s lead in rocket thrust. The issue resurfaced in the televised 1960 presidential debates, when Sen. John F. Kennedy attacked Nixon for wanting to lead a nation No. 1 in color TV, but not in rockets.









