Obama and the deficit: lessons from history

President Obama has recently sent strong political signals that he hopes to reduce the deficit while still maintaining support for a weak economy. Success will require a deft tightrope walk. In "The Age of Deficits: Presidents and Unbalanced Budgets from Jimmy Carter to George W. Bush," recently published by University Press of Kansas, Iwan Morgan offers a historical perspective on Obama's challenge. Morgan is a professor of U.S. studies and deputy director of the Institute for the Study of the Americas at the University of London.

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How Barack Obama deals with the mammoth budget deficit will be a defining issue of his presidency. The United States has to get federal borrowing under control before the debt-GDP ratio becomes unsustainable in the mid 21 century. This may seem like a manana issue but the longer it is left unaddressed, the more difficult it becomes to solve. In dealing with the deficit, the 44th president can find some lessons from history to guide him.

Deciding the right time to shift from fiscal stimulus to help the economy to fiscal restraint to reduce the deficit will be crucial. Moving too soon will make the long-term problem of deficit control more difficult because it will impair restoration of economic growth, the surest means of boosting tax revenues.

On this score, Obama should heed the error committed by Franklin D. Roosevelt. Convinced that the Depression was effectively over and anxious to head off inflation, FDR sought a balanced budget in 1937. However, the premature removal of fiscal stimulus choked off the recovery and sent the economy into renewed recession, from which it only emerged in World War II.

Conversely, if Obama changes course too late, he will lack political credibility as a deficit hawk -- like George W. Bush, who became a born-again budget balancer only when facing a Democratic Congress in 2007.

The president should use the bully pulpit to prepare and educate the American people about the need for fiscal change. Presidents who change fiscal course abruptly without properly educating the public as to its necessity tend to lose popular support. This happened to Jimmy Carter when he shifted from stimulus to battling inflation in 1978 and George H. W. Bush when he accepted tax increases to combat the deficit in 1990.

Similarly, as Bill Clinton discovered to his cost when raising taxes as part of his deficit control initiative of 1993, the president must persuade the public that sacrifice is needed. The challenge facing Obama is to teach a new reality as FDR did in the Depression -- this requires informative and concrete rhetoric to explain the options rather than fine-sounding generalizations.

Despite the current intensity of partisan divisions, it is still important to continue searching for bipartisan agreement. During periods of deficit growth in the recent past, the most significant budget control initiatives had bipartisan support, notably Ronald Reagan's 1982 budget compromise, the 1990 budget deal, and the Balanced Budget Act negotiated by Bill Clinton and Newt Gingrich in 1997. Provided they are real rather than gimmicky, bipartisan deals tend to be long-lasting and can lead to further consensual action.

The only significant anti-deficit program that lacked bipartisan support was Clinton's 1993 initiative but this made the budget the focal point of partisan conflict for the next three years. At present, of course, there is little hope of the parties acting together. However, as Clinton showed in the government shutdown battles of 1995-96, the president can gain credit with the public by eschewing rancour and intractability, thereby making it difficult for the opposition party to resist popular preference for compromise.

One way of depoliticizing the budget process is to create a special bipartisan commission to make policy recommendations on deficit control. The most successful example was the Social Security commission established by Ronald Reagan to recommend ways of ensuring program solvency. However, the congressional Democrats also had an interest in backing its 1983 report.

Other bipartisan commissions have not proved effective because the political will to support their recommendations was absent. The lesson of history is that the budget problem is fundamentally about politics rather than policy since party identity is fundamentally bound up with issues of taxation and spending. Experts sitting on commissions can devise fiscal proposals, but only politicians can convert these into reality.

Hence, President Obama should not stop working for bipartisanship because failure to control the deficit will have devastating consequences. The bottom line is that its descent into unsustainability constitutes one of the greatest threats facing America.

By Steven E. Levingston |  February 5, 2010; 5:30 AM ET Politics , Steven Levingston
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