Economic Reckoning
Obama does not have the debt under control.

The president campaigns in Cincinnati, Ohio, September 17, 2012.


Conrad Black

The election campaign has entered its final phase with the administration irritatingly pretending that some sort of economic recovery is under way, and that a deficit-reduction plan that leads where a sane and numerate citizen might wish to go is in place. President Obama benefits from what Johnson and Macaulay called “the disingenuousness of years,” in this case, of the din of American electoral discourse that glories, often entertainingly, in partisan hyperbole.

The deficit is consigned to a category of perennial problems requiring some attention but in hand, as well as being entirely the fault of the previous regime. If progress is not as swift as is desired, it is yet indisputable and inexorable. And the agitations of the opposition, to the effect that conditions are more dire and that catastrophe impends, are just the excesses of unworthy office-seekers abusing the quadrennial right to frighten the voters in a poor cause.

Ronald Reagan made his national political debut in 1964 warning America that a vote for Lyndon Johnson was “the first step into a thousand years of darkness.” Over 61 percent of voting Americans took that step, and what they got was not a Great Society; but the Cassandras of 1964, including Richard Nixon and Reagan himself, sorted it out eventually. In 1932, Herbert Hoover warned that a vote for Franklin Delano Roosevelt was a vote to make “grass grow in the streets of a hundred cities, a thousand towns, and for weeds to overrun a million farms.” Four consecutive elections of Roosevelt as president followed, and with them, victory over almost every foreign and domestic enemy, as unemployment shrank from 33 percent (and not the mere 25 percent claimed by anti-Roosevelt revisionists) to 0.25 percent.

It is in this context, America’s leaders tell us, and the depressingly bland and ineffectual Romney campaign effectively confirms, that current alarmist opposition comment should be evaluated. The president said in his acceptance speech three weeks ago that “independent experts say that my plan would cut our deficits by 4 trillion dollars.” This was the silver bullet and the poison pill: Soaking the rich and absorbing the end of the Bush tax cuts, through the hopeless gridlock and intellectual bankruptcy of the entire political class, would trim $400 billion per year off deficits that would still continue to hemorrhage at over $1 trillion per year.

Mr. Obama thought no more reassurance or analysis was necessary. Romney was deemed so incompetent, the electorate so docile, and the media so collectively incapable of elucidating public questions that those 14 words would suffice. They won’t suffice. George Shultz — former secretary of state, the Treasury, and labor, and director of the Office of Management and Budget; a Marine colonel, faculty dean at the University of Chicago, and chief executive of one of America’s great corporations (Bechtel); and (next to Reagan, and along with Nixon, Kissinger, and James Baker) one of America’s greatest public officials of the past 50 years — this week co-authored a seminal column in the Wall Street Journal in which he and his colleagues, in the most measured and unpolemical terms, tried to sketch out the extent of the current fiscal problem.

The proportions of the crisis, easily overlooked in the president’s breezy routinization of an endless horizon of trillion-dollar annual budget deficits, were starkly but not histrionically presented: Federal spending is $1 trillion greater than it was five years ago, while revenues are almost unchanged; debt has increased in four years by 50 percent over what had accumulated in the preceding 220 years of American history combined, or $55,000 per family, or about $17,000 per man, woman, and child in the country. Because it is keeping interest rates at 1 percent or less, in an unsuccessful effort to incite economic growth, the Federal Reserve is encouraging the government to defer serious deficit-reduction measures. If it costs almost nothing to borrow money, it doesn’t matter how much is borrowed. Most of U.S. federal debt is subscribed by the Federal Reserve, a 100 percent subsidiary of the U.S. Treasury, directly and through the banking system, and paid for by the issuance of notes. The great bulk of U.S.-government borrowing is short term, to take advantage of the current bombed-out interest rates, and the interest paid by the federal government returns through the banking system to the Federal Reserve, and then is dividended back to the federal government, so these vast and self-inflating deficits don’t really cost anything.