I WAS a good loser four years ago. “In the grand scheme of history,” I wrote the day after Barack Obama’s election as president, “four decades is not an especially long time. Yet in that brief period America has gone from the assassination of Martin Luther King Jr to the apotheosis of Barack Obama. You would not be human if you failed to acknowledge this as a cause for great rejoicing.”
Despite having been an adviser to John McCain, I acknowledged his opponent’s remarkable qualities: His soaring oratory, his cool, hard-to-ruffle temperament, and his near-faultless campaign organisation.
Yet the question confronting the country nearly four years later is not who was the better candidate four years ago. It is whether the winner has delivered on his promises. And the sad truth is that he has not.
In his inaugural address, Obama promised “not only to create new jobs, but to lay a new foundation for growth”. He promised to “build the roads and bridges, the electric grids, and digital lines that feed our commerce and bind us together”. He promised to “restore science to its rightful place and wield technology’s wonders to raise healthcare’s quality and lower its cost”. And he promised to “transform our schools and colleges and universities to meet the demands of a new age.” Unfortunately, his scorecard on every single one of those pledges is pitiful.
In an unguarded moment earlier this year, the president commented that the private sector of the economy was “doing fine”. Certainly, the stock market is well up (by 74%) relative to the close on inauguration day 2009. But the total number of private-sector jobs is still 4.3m below the Jan 2008 peak. Meanwhile, since 2008, a staggering 3.6m Americans have been added to Social Security’s disability insurance programme. This is one of many ways unemployment is being concealed.
In his fiscal year 2010 budget the president envisaged growth of 3.2% in 2010, 4% in 2011, 4.6% in 2012. The actual numbers were 2.4% in 2010 and 1.8% in 2011; few forecasters expect it to be above 2.3% this year.
Unemployment was supposed to be 6% by now. It has averaged 8.2% this year so far. Meanwhile, real median annual household income has dropped more than 5% since Jun 2009.
Welcome to Obama’s America: Nearly half the population is not represented on a taxable return — almost exactly the same proportion that lives in a household where at least one member receives some state benefit. We are becoming the 50:50 nation — half of us paying the taxes, the other half receiving the benefits.
And all this despite a far bigger hike in the federal debt than we were promised. According to the 2010 budget, the debt in public hands was supposed to fall in relation to GDP from 67% in 2010 to less than 66% this year. By the end of this year, according to the Congressional Budget Office, it will reach 70% of GDP.
These figures significantly understate the debt problem, however. The ratio that matters is debt to revenue. That number has leapt upward from 165% in 2008 to 262% this year, according to figures from the IMF. Of developed economies, only Ireland and Spain have seen a bigger deterioration.
Not only did the initial fiscal stimulus fade after the sugar rush of 2009, but the president has done absolutely nothing to close the long-term gap between spending and revenue.
His much-vaunted healthcare reform will not prevent spending on health programmes growing from more than 5% of GDP now to almost 10% in 2037. Add the projected increase in the costs of Social Security and you are looking at a total bill of 16% of GDP 25 years from now.
That is only slightly less than the average cost of all federal programmes and activities, apart from net interest payments, over the past 40 years. Under this president’s policies, the debt is on course to approach 200% of GDP in 2037 — a mountain of debt that is bound to reduce growth even further.
And even that figure understates the real debt burden. The most recent estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $222tn (€177tn).
The president’s supporters will, of course, say that the poor performance of the economy can’t be blamed on him. They would rather finger his predecessor, or the economists he picked to advise him, or Wall St, or Europe.
There’s some truth in this. It was pretty hard to foresee what was going to happen to the economy in the years after 2008. Yet surely we can legitimately blame the president for the political mistakes of the past four years. After all, it’s the president’s job to run the executive branch effectively. And here is where his failure has been greatest.
On paper it looked like an economics dream team: Larry Summers, Christina Romer, and Austan Goolsbee, not to mention Peter Orszag, Tim Geithner, and Paul Volcker. The inside story, however, is that the president was wholly unable to manage the mighty brains — and egos — he had assembled to advise him.
This problem extended beyond the White House. After the imperial presidency of the Bush era, there was something more like parliamentary government in the first two years of Obama’s administration. The president proposed; Congress disposed.
And it was the Democrats in Congress who devised the 2,319-page Wall St Reform and Consumer Protection Act, a near-perfect example of excessive complexity in regulation. It eliminates one regulator and creates two new ones.
It is five years since the financial crisis began, but the central problems — excessive financial concentration and excessive financial leverage — have not been addressed. Today a mere 10 too-big-to-fail financial institutions are responsible for three quarters of total financial assets under management in the US. Yet the country’s largest banks are at least $50bn short of meeting new capital requirements under the “Basel III” accords governing bank capital adequacy.
And then there was healthcare. No one seriously doubts that the US system needed to be reformed. But the Patient Protection and Affordable Care Act (ACA) of 2010 did nothing to address the core defects of the system: The long-run explosion of Medicare costs as the baby boomers retire, the “fee for service” model that drives healthcare inflation, the link from employment to insurance that explains why so many Americans lack coverage, and the excessive costs of the liability insurance that our doctors need to protect them from our lawyers.
Ironically, the core Obamacare concept of the “individual mandate” (requiring all Americans to buy insurance or face a fine) was something the president had opposed when vying with Hillary Clinton for the Democratic nomination. A much more accurate term would be “Pelosicare”, since it was she — Nancy — who really forced the bill through Congress.
Pelosicare was not only a political disaster. Polls consistently showed that only a minority of the public liked the ACA, and it was the main reason why Republicans regained control of the House in 2010. It was also another fiscal snafu. The president pledged that healthcare reform would not add a cent to the deficit. But the Congressional Budget Office and joint committee on taxation now estimate that the insurance-coverage provisions of the ACA will have a net cost of close to $1.2tn over the 2012–22 period.
The president just kept ducking the fiscal issue. Having set up a bipartisan national commission on fiscal responsibility and reform, Obama effectively sidelined its recommendations of approximately $3tn in cuts and $1tn in added revenues over the coming decade. As a result there was no “grand bargain” with House Republicans — which means the country will hit a fiscal cliff on Jan 1 as the Bush tax cuts expire and the first of $1.2tn of cuts are imposed. The CBO estimates the net effect could be a 4% reduction in output.
THE failures of leadership on economic and fiscal policy over the past four years have had geopolitical consequences. The World Bank expects the US to grow by just 2% in 2012. China will grow four times faster than that; India three times faster. By 2017, the IMF predicts, the GDP of China will overtake that of the United States.
Meanwhile, the fiscal train wreck has already initiated a process of steep cuts in the defence budget, at a time when it is very far from clear that the world has become a safer place.
For me the president’s greatest failure has been not to think through the implications of these challenges to American power. Far from developing a coherent strategy, he believed that all he needed to do was to make touchy-feely speeches around the world explaining to foreigners that he was not George W Bush.
Believing it was his role to repudiate neoconservatism, Obama missed the revolutionary wave of Middle Eastern democracy — precisely the wave the neocons had hoped to trigger with the overthrow of Saddam Hussein in Iraq. When revolution broke out — first in Iran, then in Tunisia, Egypt, Libya, and Syria — the president faced stark alternatives. He could try to catch the wave by lending his support to the youthful revolutionaries and trying to ride it in a direction advantageous to American interests. Or he could do nothing and let the forces of reaction prevail.
In the case of Iran he did nothing, and the thugs of the Islamic Republic ruthlessly crushed the demonstrations. Ditto Syria. In Libya he was cajoled into intervening. In Egypt he tried to have it both ways, exhorting Egyptian President Hosni Mubarak to leave, then drawing back and recommending an “orderly transition”.
The result was a foreign-policy debacle. Not only were Egypt’s elites appalled by what seemed to them a betrayal, but the victors — the Muslim Brotherhood — had nothing to be grateful for. America’s closest Middle Eastern allies — Israel and the Saudis — looked on in amazement.
Remarkably the president polls relatively strongly on national security. Yet the public mistakes his administration’s uninhibited use of political assassination for a coherent strategy. According to the Bureau of Investigative Journalism in London, the civilian proportion of drone casualties was 16% last year. Ask yourself how the liberal media would have behaved if Bush had used drones this way. Yet it is only Republican secretaries of state who are accused of committing “war crimes”.
The real crime is that the assassination programme destroys potentially crucial intelligence every time a drone strikes. It symbolises the Obama administration’s decision to abandon counter-insurgency in favour of a narrow counter-terrorism. What that means in practice is the abandonment not only of Iraq but of Afghanistan too. Understandably, the men and women who have served there wonder what exactly their sacrifice was for, if any notion that we are nation building has been quietly dumped. Only when both countries sink back into civil war will we realise the real price of Obama’s foreign policy.
America under this president is a superpower in retreat, if not retirement. Small wonder 46% of Americans — and 63% of Chinese — believe China has replaced the US as the world’s leading superpower or eventually will.
It is a sign of just how completely Obama has “lost his narrative” that the best case he has yet made for re-election is that Mitt Romney should not be president.
Now Obama is going head-to-head with his nemesis: A politician who believes more in content than in form, more in reform than in rhetoric. In the past days much has been written about Wisconsin Congressman Paul Ryan, Mitt Romney’s choice of running mate. I know, like, and admire Paul Ryan. For me, the point about him is simple. He is one of only a handful of politicians in Washington who is truly sincere about addressing this country’s fiscal crisis.
Over the past few years Ryan’s “Path to Prosperity” has evolved, but the essential points are clear: Replace Medicare with a voucher programme for those now under 55, turn Medicaid and food stamps into block grants for the states, and simplify the tax code and lower tax rates to try to inject some supply-side life back into the US private sector. Ryan is not preaching austerity.
He is preaching growth.
I first met Paul Ryan in Apr 2010. I had been invited to a dinner in Washington where the US fiscal crisis was going to be the topic of discussion. So crucial did this subject seem to me that I expected the dinner to happen in one of the city’s biggest hotel ballrooms. It was actually held in the host’s home.
Three congressmen showed up — a sign of how successful the president’s fiscal version of “don’t ask, don’t tell” (about the debt) had been. Ryan blew me away. I have wanted to see him in the White House ever since.
It remains to be seen if the American public is ready to embrace the radical overhaul of the nation’s finances that Ryan proposes. The public mood is deeply ambivalent. The president’s approval rating is down to 49%. The Gallup Economic Confidence Index is at minus 28.
But Obama is still narrowly ahead of Romney in the polls as far as the popular vote is concerned (50.8 to 48.2) and comfortably ahead in the electoral college. The pollsters say that Ryan’s nomination is not a game-changer; indeed, he is a high-risk choice for Romney because so many people feel nervous about the reforms Ryan proposes.
But one thing is clear. Ryan psychs Obama out. This has been apparent ever since the White House went on the offensive against Ryan last year. And the reason is that, unlike Obama, Ryan has a plan — as opposed to a narrative — for this country.
Romney is not the best candidate for the presidency I can imagine. But he was clearly the best of the Republican contenders for the nomination. He brings to the presidency precisely the kind of experience — both in the business world and in executive office — that Obama lacked four years ago. (If only Obama had worked at Bain Capital for a few years, instead of as a community organiser in Chicago, he might understand why the private sector is not “doing fine” right now.)
And by picking Ryan as his running mate, Romney has given the first real sign that — unlike Obama — he is a courageous leader who will not duck the challenges America faces.
The voters now face a stark choice. They can let Barack Obama’s rambling, solipsistic narrative continue until they find themselves living in some American version of Europe, with low growth, high unemployment, even higher debt — and real geopolitical decline.
Or they can opt for real change: The kind of change that will end four years of economic under-performance, stop the terrifying accumulation of debt, and re-establish a secure fiscal foundation for American national security.
I’ve said it before: It’s a choice between les États Unis and the Republic of the Battle Hymn.
I was a good loser four years ago. But this year, fired up by the rise of Ryan, I want badly to win.
lNiall Ferguson is a professor of history at Harvard University. He is also a senior research fellow at Jesus College, Oxford University, and a senior fellow at the Hoover Institution, Stanford University. His Latest book, Civilization: The West and the Rest, has just been published by Penguin Press.