What was most striking about the budget – including that it will explode the federal deficit to $1.75trillion this year, its highest since the Second World War – was that it was a ruthless declaration of how Mr Obama intends fundamentally to change the American social contract, from Right to Left. Its goal is not just to rescue the economy. It is to crush conservatism, end the age of anti-tax, anti-regulation policies that have been the guiding philosophies of US governance for a generation, and usher in a fresh “epoch”, as his aides call it, of New Deal-Great Society wealth redistribution and central intervention that were repudiated by Ronald Reagan 30 years ago. Much of his agenda will be paid for by a ten-year, $1 trillion tax increase on families earning more than $250,000 a year, beginning in 2011, a move that critics say risks stunting the economic recovery…
…What has begun to trouble some even within his own party is that Mr Obama’s pledge to spend the US out of recession, while slashing the budget deficit to $533 billion within four years, already looks recklessly optimistic. Few dispute, even among Republicans, the need for healthcare reform or to wean America off foreign oil. It is the scale of debt that Mr Obama is willing to incur to achieve these goals that is causing such heartburn.
And it is not just Americans who desperately need him to prevail. As Gordon Brown said in Washington this week, while pledging faith in the President’s plans, everyone is watching the US economy. The entire developed world is banking on Mr Obama to succeed.
But much of his promise to rein in the deficit rested on a projection that the recession will cease and the US economy grow next year, but nobody can clearly see an end to this slump. The central question – how to stop the banking sector from collapse – is still a work in progress. They prefer huge injections of cash to stop the banks dying – but stop short of nationalisation – while they try to work out how to rid them of at least $2 trillion of toxic assets. There is still a significant chance that the scale of debt involved could devour Mr Obama’s presidency.
The markets are so unnerved about Mr Obama’s ability to rescue the financial sector, and by the numerous bailouts that have had little effect, that wealth is being destroyed on Wall Street at a rate not seen since the 1930s. The President said on Tuesday that he does not worry about “the day-to-day gyrations of the stock market”, but investors have made it clear that his economic prescriptions have so far failed to reassure them.
Mr Obama also says that much of his programme will be paid for by reducing the cost of the wars in Iraq and Afghanistan. Yet he has just ordered 17,000 more troops to Afghanistan for a war that his Defence Secretary says will be a long and difficult slog, and he is still groping for a strategy in Pakistan.
“We are always better off on the high wire,” David Plouffe, Mr Obama’s campaign manager, said last year. Now Mr Obama is President, watching from below has become both enthralling and terrifying.
“Enthralling and terrifying”? I’ll stick with “terrifying.” Read the whole thing.