Obama's bold deficit pledge comes back to haunt him

WASHINGTON Fri Feb 17, 2012 6:37pm EST

U.S. President Barack Obama speaks at a Democratic Party fundraiser in San Francisco, February 16, 2012. REUTERS/Jason Reed

U.S. President Barack Obama speaks at a Democratic Party fundraiser in San Francisco, February 16, 2012.

Credit: Reuters/Jason Reed

Related Topics

WASHINGTON (Reuters) - One month after taking office, President Barack Obama summoned the nation's top lawmakers and budget experts to the White House for a summit to figure out how to tame huge federal deficits.

Standing at a podium in the elegant East Room, the Democratic president wasted no time in reminding his audience, which included Republican congressional leaders, that he had just inherited a $1.3 trillion deficit in the midst of "an economic crisis unlike any we have seen in generations."

He gave a finger-waving talk on fiscal responsibility and boldly pledged to halve the deficit in four years.

There was no hint in his remarks of the behind-the-scenes debate that had taken place among his advisers over whether such an ambitious promise could be kept. And as the economic recovery failed to take off, he stuck with it for the next two years.

On Monday, three years after first making that pledge, Obama conceded that he would not be able to keep it.

The pledge casts light on how Obama's administration, in its attempt to articulate a bold vision for a nation in crisis, made a politically risky bet based on rosy assumptions that were later wrecked by an economy that did not play ball.

"If there was a mistake here, it was in making a pledge that was going to be a function of variables you couldn't foresee," said Jared Bernstein, Vice President Joe Biden's former chief economist.

Republicans, aiming to make Obama a one-term president in November, have jumped on the broken pledge with glee, trying to turn up the heat on the leader even as a stronger economy threatens to undermine their argument for voting him out.

While his opponents seek to make political hay over the issue, analysts say voters are likely to judge Obama on his broader handling of the economy when they vote in November.

Obama played down the broken promise this week, blaming economic events beyond his control. The recession was much deeper than anyone had realized when he made the pledge on February 23, 2009, he told an Atlanta broadcaster on Tuesday.

"A lot of us didn't understand at that point how bad it was going to get," he said.

That is true, budget experts agree. But they say the promise was still overly ambitious and left little room for surprises that could, and did, knock the economic recovery off course.

While it became frighteningly clear that the recession had been extraordinarily severe and the recovery lackluster, Obama reiterated his promise, even as late as February of last year.

"They made a dumb commitment," said David Walker, a former U.S. comptroller general who took part in Obama's 2009 summit.

'ROLLING THE DICE'

Obama's plan was based on the idea that the economy would post a quick recovery, much like it had after other recent recessions. It was supported by White House economic forecasts that were more optimistic than those of many private economists.

Many experts expected the financial crisis to do more lasting damage to the economy. Only months earlier, the nation's banking system had nearly seized up as panic gripped Wall Street following the bursting of a housing bubble.

"They had to know in so many ways with regard to housing and credit and jobs that they were in a problematic situation for economic recovery," said Ethan Siegal, a fiscal policy expert who advises investors on Washington politics.

Still, Siegal said it was expected that a president would strike an optimistic tone during a crisis, helping him to project leadership. "Part of politics is rolling the dice."

The White House said this week the government could still halve the deficit inherited by Obama by 2014, a year later than promised and not soon enough for Republican critics.

"We've heard a lot of excuses from this administration for why the president broke his promise," said Republican Congressman Paul Ryan, chairman of the House of Representatives Budget Committee. "But what we haven't heard is any semblance of accountability."

A senior administration official said at least some of the blame for missing the target lies with Republicans in Congress, who walked away from an offer by Obama last summer to pursue a grand bargain on the deficit.

Nonetheless, the issue is a weak spot for Obama. A poll by Gallup earlier this month showed only 32 percent of Americans approve of Obama's handling of the deficit, even lower than his 38 percent approval rating for economic issues.

The nation's reliance on deficit spending looms ominously over the economy. The nonpartisan Congressional Budget Office recently said keeping current tax rates low would help balloon the national debt so much it would start choking off private investment within a decade, hurting economic growth.

Under Obama's budget plan for fiscal next year, money owed to bondholders would nearly double to $19.5 trillion by 2022.

While the White House expects debt to be stable as a percentage of total economic output - suggesting it is not a major threat - private experts say this assumes lenders do not lose trust in Washington's ability to pay them back in full.

That would lead to higher interest rates on the debt, making it more expensive for Washington to borrow.

"Unless we start to address these budget issues seriously, it's only a matter of time before the credit markets start to consider us as another Greece," said Kim Rupert, an analyst at Action Economics LLC in San Francisco.

OBAMA'S VULNERABILITY

Seeing the president's vulnerability, Republicans in Congress plan campaign ads this fall about Obama's "broken promise" to halve the deficit, said Andrea Bozek, a spokeswoman of the National Republican Congressional Committee.

Bernstein acknowledged some in the administration were not convinced the deficit would fall as fast as they hoped when Obama made the pledge.

"Everybody had different levels of confidence. I and others certainly recognized that those types of forecasts are fragile when you're at that kind of point of uncertainty in the economic cycle," he said. "There was some discussion, of course."

Obama is not the first president to dial back on a big economic promise. Former Republican President Ronald Reagan never balanced the budget, as he had vowed to do.

"We never got close," said Murray Weidenbaum, a senior economist for Reagan between 1981 and 1982 who was involved in backing off that administration's pledge.

But when asked whether Obama will suffer a voter backlash, he notes his former boss cruised to re-election victory in 1984 despite big increases in the deficit under his watch.

"It's a little embarrassing but you just move on," Weidenbaum said.

(Additional reporting by Caren Bohan and Lily Kuo in Washington and Burton Frierson in New York; Editing by Ross Colvin and Vicki Allen)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (29)
Sensibility wrote:
This is shameful. It’s even more shameful that this is only one of many broken Obama promises. Did they close Gitmo yet? How’s that Russian reset working out? There will be NO mandate for health insurance under Obamacare? This presidency has been filled to the rafters with lies and broken promises. Anyone still supporting Obama must be deep, deep in denial. Obama, your time is up.

Feb 17, 2012 1:15pm EST  --  Report as abuse
jaham wrote:
I completely agree with sensibility. How anyone could think Obama deserves four more years is baffling.

If he had followed the Simpson Bowles commission findings that he himself called for, we would be in much better shape.

I so badly wish Paul Ryan was running for the GOP nomination, he would blow Obama out of the water and get this country on the right track.

Feb 17, 2012 2:28pm EST  --  Report as abuse
NobleKin wrote:
“Republicans, aiming to make Obama a one-term president in November, have jumped on the broken pledge with glee…”

Because power for Republicans is far more important than the well being of the nation.

Much of what Republicons say they would have done mirror what was done by Herbert Hoover (no bailouts, no assistance) and we see how well that went.

@Sensibility, evidently you didn’t get to the part about Reagan’s failure to balance the budget and I’m sure you don’t know what Reagan’s unemployment rates looked like through his first three years.

And you apparently failed to read the part where it stated no one could have predicted how bad it was going to get…

Add up all of the variables faced by this President when he took over and it is remarkable things have gone so well. And to understand this simply study every other Recession in America since the Depression.

Housing Collapse, Banking Collapse, Market Collapse, High Fuel, Massive Unemployment, Two Wars, Massive Bailouts TARP – etc., Europe on the edge, Massive Spending (Homeland Defense) and recession related debt, Japan Disaster, Gulf Spill, Weather disasters (floods, droughts, tornado storms), Middle East upheaval, Republicans in Congress (’11 summer brinksmanship)…

Any one of these can affect or create a downturn and Obama has had to manage all of them.

Obamacare is so utterly misrepresented by the Right it is laughable. Private Health Insurance was (and remains in my opinion) on an unsustainable track rising over 10% per year the past decade. Healthcare costs/Coverage costs were seen as the single greatest threat to our long-term economic viability as a nation (long before the Great Recession started). Obamacare as Righties like to call it was a massive compromise with Big Insurance to keep them in the game and help tame the healthcare beast threatening the nation. It was conceived by Newt Gingrich and other ‘pro-private system’ and implemented with fair success in Massachusettes as Romneycare…Most of the fundamental aspects of this program preserve private healthcare coverage and expand actual ‘free market’ access to healthcare providers instead of the monopolistic controls held in many states.

For the record: I am wholly against it for the long haul…should have been a fully government run single payer system…but as far as compromises go it was better than ANYTHING the Republicons were suggesting as an alternative.

But who cares if it is successful? let’s repeal it and go back to the old unsustainable system that was threatening America’s long term economic viability…Again, Republicons do not offer ANY sustainable alternatives.

Gitmo: You know damn well the Republicons blocked every attempt to try the detainees in the civil system and blocked all attempts to bring them into the jurisdiction of our federal courts to be tried…like all of the previous terrorists. A Republicon partisan brick wall that fails to meet our standards for human rights and due process.

Russian reset? is that like when Bush looked into Putin’s eyes and knew his soul? Or is that based on Palin’s seeing Russia from her backyard as a basis for understanding international policy?

The current field of Republican candidates is laughable. Better than Obama and the missed targets? Not even close. You have a field of Republicans who don’t think the wealthy in America should pay ANY taxes. Did I say laughable?

Feb 17, 2012 2:48pm EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.