If you were sitting in the White House, it is entirely understandable that you would decide to unveil the surprise announcement of Ben Bernanke’s reappointment today: that may be the best and only way to divert attention from other economic news that is eye-popping.
The Bernanke appointment will be welcomed in financial circles, both here and overseas, because he is widely seen as the man who stopped us from going over a cliff. While some in Congress remain relentless critics of Bernanke, President Obama will generally win high marks for a reassuring move.
Strikingly, this is the third time in recent years that a president of one party has reappointed the head of the Federal Reserve first selected by a president of the other party: Ronald Reagan reappointed Paul Volcker, a Carter appointee; Bill Clinton reappointed Alan Greenspan, a Reagan appointee; and now Obama is reappointing a George W. Bush appointee. All of the choices have been seen as wise at the time.
Yet even the Bernanke story cannot fully deflect attention from the other economic story engulfing the administration today: its official announcement of new economic projections – in particular, its acknowledgment that deficits over the coming decade will be even higher than it said only three months ago. Now, the administration is predicting that instead of $7 trillion in new deficits, the country will rack up a staggering $9 trillion in new deficits for the 2010-2019 period. (The Congressional Budget Office has published its own numbers today that are largely parallel.)
Deficits of that magnitude would be extraordinarily dangerous and irresponsible for the country. They would double the national debt, risk much higher inflation, saddle future taxpayers with annual interest payments of over $900 billion, make us even more reliant upon China as a creditor, and over time would weaken us as a great nation. Talk about trend lines that are unsustainable!
Health care reform was already in growing trouble before this report. These deficit projections clearly add another significant threat to its passage. The administration will now have to persuade Congress and a skeptical public that it would be financially prudent to embark upon an ambitious new entitlement program in the teeth of dangerously growing deficits.
As vital and as morally right as it is to extend health insurance to everyone in need, the public is also wise to worry about the costs of robust reform. People have long memories, and they will recall that when Medicare was passed in the mid-1960s during the LBJ years, the House Ways and Means Committee projected that Medicare would cost about $12 billion in 1990; in 1990, it reportedly cost some $107 billion.
When Washington enacted prescription drug reform in the George W. Bush years, the administration put a price tag on it of $400 billion over nine years; new estimates have projected a cost of $724 billion over nine years. More recently, Massachusetts has embraced a health reform plan that is widely hailed – and serves as a model for the national effort this year – but it, too, has far outstripped original cost estimates.
In view of all this, President Obama has a choice. He can push forward with health reform efforts, giving short shrift to these deficit concerns. If so – if he continues to insist that Washington is just too “wee-weed up” — he will find that some of his strongest allies will become more reluctant on a big health reform bill this year.
Or he can come to grips with these grim forecasts and present to the nation a credible, comprehensive plan for reining in long-term deficits before Congress acts on health reform. The second path demands more courage – and is also the one of real leadership.