OBAMA´S BUDGET SHOWS FAILURE OF LEADERSHIP / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( A MUST READ )

Obama’s budget shows failure of leadership

By Terrence Keeley

Published: February 14 2011 15:50

President Barack Obama has unveiled a hugely disappointing budget, cutting only a few percentage points from the $100,000bn in projected US federal deficits over the remainder of this century. Why was it such a dud? Because Social Security, Medicare and Medicaid – the entitlement programmes that will comprise more than 60 per cent of all spending just a decade from now – were left untouched.


Deck chairs are being rearranged on the Titanic. American politicians promise their constituents an ever-expanding social safety net, but with no intention of paying for it. Most experts know entitlement reform is essential, but few political leaders dare to lead – because doing so would be self-immolating.


Mr Obama’s budget should have proposed much more significant cuts, but ultimately it is the US Congress that is responsible for tax and spending legislation. Mr Obama’s budget is therefore aspirational, but unbinding. In the vernacular – he proposes, Congress disposes.


To put this failure right America’s leaders must begin to make a strong moral case for entitlement reform. And to develop this argument they should turn first to an unlikely source of policy advice: The Vatican.


In a series of papal encyclicals going back to 1891, Rome has advocated several principles, the strict application of which could preserve all essential social services, and pay down the US debt to zero.


Every Pope from Leo XIII through Benedict XVI has urged policy makers to respect the principle of subsidiarity, which holds that the most local level of government – or best of all, the individual – should be held responsible for solving problems.


Pope Benedict has written. “Rights presuppose duties. The sharing of reciprocal duties is a more powerful incentive to action than the mere assertion of rights.” In his most recent encyclical, Benedict also calls urgently for heightened, personal responsibility. “Integral human development involves a free assumption of responsibility in solidarity on the part of everyone. Institutions by themselves are not enough.”


These excerpts make clear a reasonable justification for trimming back middle and upper-middle class benefits, especially if the continuation of those programmes undermine support for the truly needy. This is the precise fate current US entitlement programmes have in store for America’s poorest.


It’s also clear that there is a strong moral case for not providing support to those who are able to take care of themselves. To develop properly as individuals, and as a society, we must each assume every responsibility we can. This is the sort of argument that Mr Obama, and other US politicians on both sides of the political aisle, should be making.


The implications of these principles are radical. Middle and upper-middle class benefits become impossibe to justify. Tax deductibility of interest, education grants and farm price subsidies, among other policies, would be phased out for all but the indigent. Medicare and Medicaid benefits would be strictly means-tested. Retirement benefits would be adjusted to take account of need too. Privatisation of some portion of Social Security is no longer a cardinal sin; for the well-off, it is a moral imperative.


Such an approach would be far more radical than the recent Bowles-Simpson deficit commission, which proposed $4000bn in budget savings to 2020. This in turn was more than double what Mr Obama outlined today. Instead a more radical (and more sensible) option would be that approach proposed by Republican Congressman Paul Ryan – whose “roadmap” plan, the Congressional Budget Office estimates, would eliminate all US federal debt in less than a few generations.


Mr Obama’s proposals on Monday amount to plasters, when tourniquets are needed. He failed to tell Americans that they cannot have an ever expanding number of entitlements – public education, secure retirement, living wages and universal health coverage – without revenue to pay for them. Advocating unfounded, unfunded rights is paving a proven road to fiscal hell. If Mr Obama will not make this case, who will?


The writer is senior managing principal and founder of Sovereign Trends, LLC


Copyright The Financial Times Limited 2011.