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.
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