Let's say your car is on cruise control at 100 miles per hour, and there's a brick wall in the distance. The responsible course of action would be to slow down gradually and turn the car so it's no longer pointed toward the brick wall. But if President Obama were driving the way he conducts fiscal policy, he'd be lowering the speed to 98 miles per hour and continuing on the same trajectory -- simply assuming he'd be able to slam on the brakes right before impact.
During a Wednesday interview with ABC's George Stephanopoulos, Obama warned against adopting a "crisis mentality" when it comes to concerns about the mounting national debt. With the debt currently approaching $17 trillion, Obama said, "we don't have an immediate crisis in terms of debt."
Obama is correct in the sense that bondholders are still willing to purchase U.S. debt at low interest rates. The country isn't currently in crisis. But this isn't going to be the case forever, because a combination of an aging population and growing health care costs have put the nation on an unsustainable path in the long term.
The supposed concessions that Obama has offered on reforming entitlements won't even begin to solve the problem. Changing the measure of inflation used to calculate Social Security benefits, for instance (known as "chained CPI"), would save only $127 billion over the next decade, or less than 1 percent of the $47.2 trillion in projected spending over that time. And that $47.2 trillion assumes that all of the deficit reduction he's signed and all of the automatic spending cuts (which Obama has described in apocalyptic terms) remain in effect.
As with past financial crises, there are always voices warning about the inevitable but others who want to keep dancing until the music stops.
During the late 1990s, those warning about the overvaluation of tech stocks were often dismissed as dinosaurs, only to be proven correct. Former Federal Reserve Chairman Alan Greenspan, who cautioned about "irrational exuberance" during the 1990s, dismissed concerns about a housing bubble in the following decade. As Greenspan put it in a 2004 speech to America's Community Bankers: "Overall, while local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity."
There are several problems with waiting for an actual crisis to hit before taking action. To start, it limits the range of options available to lawmakers and results in ugly policy. It is difficult to balance problems such as inflation and rising interest rates with economic growth. Dramatic tax increases, for instance, might help reduce deficits, but they would also depress the economy, which in turn would hinder revenue growth.
Emergency measures are likely to be much more disruptive to the economy and to people's lives. As the Congressional Budget Office wrote last month, "Deciding now what policy changes to make to resolve that long-term imbalance would allow for gradual implementation, which would give households, businesses, and state and local governments time to plan and adjust their behavior." It's also fairer to spread the policy changes among multiple generations, rather than imposing more drastic measures on a future generation.
Obama himself once recognized this. A month after taking office, he held a "fiscal responsibility summit" in which he declared, "[I]f we confront this (economic) crisis without also confronting the deficits that helped cause it, we risk sinking into another crisis down the road. As our interest payments rise, our obligations come due, confidence in our economy erodes and our children and our grandchildren are unable to pursue their dreams because they're saddled with our debts."
He declared, "I refuse to leave our children with a debt that they cannot repay, and that means taken responsibility right now, in this administration, for getting our spending under control."
Four years and $6 trillion in debt later, Obama is now warning against adopting a "crisis mentality" on the debt.
Philip Klein (email@example.com) is a senior editorial writer for The Washington Examiner. Follow him on Twitter at @philipaklein.