Belmont Club

Mr. Lonely

The Huffington Post says that President Obama’s decision to “extend tax cuts” may be the most unpopular thing he has ever done. Dan Rather believes it will be perceived as an act of betrayal that will produce a primary opponent against the president within the Democratic Party. Larry Abrams says “the masquerade is over”: Barack Obama is officially a sell-out. “A horrible economy won’t hurt Obama as much as the perception — correct in my opinion — that he is de-facto on the side of the ruling elites.”

The phrase “extension of the tax cuts” masks what not extending them truly would have been: tax increases. The readers of the Huffington Post should have known that you can’t raise taxes when people are hurting. The bad news for the readers of the Huffington Post is that there’s more to come. The deficit cannot be reduced unless they are also accompanied by large cuts in government spending.

Nick Gillespie and Veronique de Rugy claim the goal is to get government spending down to 19% of GDP. “In fiscal year 2010, which ended September 30, the federal government spent $3.6 trillion, or 25 percent of Gross Domestic Product. That’s the most spending, in terms of percentage of GDP, since 1946. Likewise, last year’s $1.5 trillion deficit, as a percentage of GDP, was the largest deficit since 1945.” But getting it down to 19% means annual cuts of $129 billion every year till 2020. Larry Abrams will be disheartened to hear that the selling out ain’t over.

Given these irresistible realities, Mark Halperin concludes that the political coalition which brought Barack Obama to power “has been shattered.” He ran on a program of magic, which in the context of the declining economy essentially promised something for nothing. Now the words have been incanted, and no rabbit is yet emerging from the hat. The midterm result suggests the electorate doesn’t believe the rabbit will ever appear at all. Unable to carry off the illusion, he is temporizing at the edges, entertaining the audience with patter and old card tricks. But the Left wants the rabbit produced from nothing, and they are angry. Now he finds himself friendless, abandoned by an audience half of which thinks he’s a fraud and the other half of which thinks he’s not trying hard enough.

Liberals believe he is an overcompromising wimp. … the business community considers Obama ignorant about markets at best, a socialist at worst. … The media, after aiding and abetting his ride to the White House, now see the President as incompetent and overwhelmed. The independents and Republicans who backed him for office currently feel he is too liberal and too weak to do the job.

In Dan Rather’s pithy phrasing, Barack Obama has “his shirttail on fire, his back to the wall, and the bill collector at the door.” But there’s worse. President Obama created a major entitlement bomb for himself in Obamacare and it’s ticking. If it isn’t repealed and replaced by real health care reform it will blow up the economy and everything to either side of the lower 48. But if it is repealed and replaced by genuine health care reform his presidency will be besieged on all sides.

Yuval Levin at the National Review described the terrible dilemma. “The entitlement crisis is the deficit and debt crisis, and the entitlement crisis is above all a health-care cost crisis.” By creating Obamacare the president has sawed himself off a tree.

Obamacare would make it worse by both creating a huge new open-ended entitlement and putting the government in the middle of the health-care sector in a way that will result in immense inefficiency and so exacerbate the cost problem and undermine the quality of care. There is simply no way to fix our deficit and debt problem without undoing Obamacare and dramatically reforming Medicare and Medicaid”

Obamacare itself cannot just be reformed, because it is deeply rooted in exactly the wrong idea about how to control health-care costs. Medicare and Medicaid exist to provide access to health insurance to two populations that often cannot readily obtain it on their own. They have changed our health-care sector for the worse by their sheer size, poor design, and inefficiency, but their aim is to provide these two populations with access to coverage. Obamacare is designed to transform our health-care sector. It would provide government-funded or subsidized insurance to many millions of people who already have private insurance (along with many millions who do not), and would transform the way the private insurance and health-care markets operate in an effort to impose price controls to contain the growth of costs. It puts into practice the notion that the way to make health-care financing more efficient is to make it a centralized system managed largely by the government, so that the only way to really squeeze costs is to tighten price controls.

Whether he likes it or not, the president has already shaped the post-midterm environment; he already created the coalitions which will either support or oppose him, though quite unintentionally. The trouble is, they will all be baying for his political scalp. The presidential campaign for 2012 will revolve principally around the victory or rejection of Obamacare. His central problem is that he can’t win the auction because it will cost more than the federal government or the tax base can afford. As James Pethokoukis of Reuters put it:

President Barack Obama’s debt reduction commission defined tough fiscal choices for Washington, though its members weren’t unanimous enough to force the ideas on lawmakers. But even if they had, the panel pulled punches on healthcare cuts. Reducing that burden may be central to the next presidential election. …

[T]he biggest stumbling block remains healthcare, which accounts for three-quarters of the U.S. government’s long-term budget woes. A presentation from Medicare’s chief actuary persuaded many panel members that Obama’s recently-passed reform law does less than estimated to reduce future government outlays … the endgame for healthcare spending could be more significant for America’s fiscal future.

He is already like the dog that caught the car. If he manages to move his health-care program forward, he will be like the dog that caught the car and was made to pay for it.

President Obama staked his political future on launching an entitlement program at the very moment when the American economy was headed into its worst crisis since the Great Depression. He may have counted on “growth” to bail him out; but it isn’t there. He may have hoped that deficit spending would pull his chestnuts out of the fire — only to look across the Atlantic to see the bond markets pummeling the EU. He may have hoped against hope that the electorate would not punish him as much as it did; and it evicted the most senior congressional and state members of his party wholesale. The worst of it was that he probably ran these risks to appease the left-wing of the Democratic Party, only to find that they are now turning on him. The trick to dealing with the left is to always remember the Chinese proverb: “he who rides on a tiger can never get off”.

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