April 17th, 2011
05:17 PM ET

Fareed's Take: Obama's intelligent but flawed budget speech

The big news this past week was President Obama's speech on the budget. It was an important, smart speech - with one major failing, which I will get to.

But for those of you wondering what Obama stands for - what his core beliefs are - I would suggest that you read or watch the speech. It was an intelligent, passionate defense of his view of America and of the role of government.

It is left of center, but not that far from the center.

He starts, after all, by taking the problem of the long-term debt seriously, proposes major spending reductions in all areas and crucially proposes a fail-safe mechanism that would kick in if the deficit did not shrink.

It sounds like a technicality, but it is crucial and it is a sign of Obama's seriousness because most budget deficit plans, including his own, make generous assumptions about growth, revenue, efficiencies and cost savings so that on paper the plan always shows the deficit going down.

The fail-safe mechanism works thus: If the actual deficit does not go down - something that always happens, in fact - Congress is then forced to choose more spending cuts and tax increases to balance the books.

In addition to this, Obama presented a vision of an activist government that would make crucial investments in education, infrastructure and research. These investments, in my view, have been as much a part of U.S. history as a vibrant market economy. Without such government support, there would be no American semiconductor industry, no early adoption of computers, no Internet and no Global Positioning System.

On taxes, the president's position is correct and inevitable. For a generation, America has kept taxes low as spending crept up ever higher. We have made up the difference by borrowing. The real debate is simply: What manner of tax reform do we want. Closing loopholes and deductions is clearly the best approach.

Then there are the entitlement programs - Medicare, Medicaid, Social Security. Here, Obama was at his most eloquent but least pragmatic.

He made a powerful case for maintaining a basic social safety net for all, particularly the elderly and the poor. I think it will resonate with most Americans.

But he lost his courage in proposing sensible reforms to these programs. The number of people eligible for Social Security and Medicare is going to double by 2030. At that point, those two programs plus Medicaid will take up 60 percent of the federal budget.

So we need radical thinking to make them affordable, if only to be able to spend on all the other key investments that will fuel growth for future generations.

I praise Republican Paul Ryan's plan for its courage in presenting a budget that takes risk and proposes pain. It also had the effect of spurring Barack Obama to present his own serious proposal.

I prefer Obama's approach - which is also closer to that of the Simpson-Bowles Commission - which contains a mix of spending cuts and some tax increases, but it needs much larger cuts to entitlement programs to make it work.

But let's step back: What is critical here is that finally, after years of kicking the can down the road, America is having that long-delayed debate about its future.

soundoff (171 Responses)
  1. David

    Why does it seem that all of this budget discussion ceners on reductions of costs, cuts in medical benefits to those who can least aford those cuts, but does not discuss the absolute need for more livng wage employment, a reduction in the income disparity between the upper 3 of income arners and the bottom 97% of wage earners, and the need for full, living wage employment (an unemployment rate of between 3.5% and 4%) for all of us? I may have missed something in the last 10 years of so; but I believe that people who are employed do consume goods and pay taxes. Could it be that a full employment population might call upon our local, state, and national "leaders" to solve real issues, rationally?

    April 18, 2011 at 9:00 am | Reply
    • Wildie

      Foreign payments, stop foreign payments to the counties around the world and pay off the debt,.. let those countries decide on their own if they are allies or not without getting anymore money from america,.. then take that TWO trillion dollars and return it to Social Security where it was stolen from in the first place,.. get the priorities right,.. america 1st the rest of the world 2nd (if and when america can afford it),.. no more world policeman, no more bribery of friendship,.. get the idea???

      April 18, 2011 at 9:22 am | Reply
  2. TJeff1776

    The largest economic crashes America has EVER suffered was in 1929 and 2008- and BOTH during eight(8) years
    of Republican Party rule. WHERE is the credibility ????? Do Repubs qualify to lecture us on fiscal policy. Sheeeesh.......IF SO....where does it it come from ??? Conservatives say REAGAN. But gads, he turns out to be a massive fake and the largest spender and tax increaser OF ALL.

    April 18, 2011 at 9:00 am | Reply
  3. Willie 12345

    The Obama plan is not aggressive enough. Moreover, spending cuts need to begin right now, immediately. He's just passing the problem onto the next administration. The House needs to take serious control of the situation, but seems to lack the courage to do so. The 2012 budget must reflect our current concerns and demostrate a reduction is spending.

    April 18, 2011 at 9:11 am | Reply
  4. Woolie

    The 1st cut is: 50% pay cut for every government employee including congress and the president!
    The 2nd cut is: 100% pension cut for every government employee including congress and the president!
    The 3rd cut is: comments please?

    April 18, 2011 at 9:25 am | Reply
    • David

      Would you cut your income 50% and forfeit all or your retirement. why do you object to public service employees be denied a pension? I have worked in both the "public sector" and the "private sector" and found there is no difference in the great a work ethic, the desire to perform the job, or overall intelligence of employees in those employment sectors.

      April 18, 2011 at 10:24 am | Reply
  5. Jason

    Mr. Zakaria, you speak of "all the other key investments that will fuel growth for future generations".

    This is a mindset we must all change. Obama's main failure in his budget speech is his unwillingness to come out and say it: going forward, we have no realistic expectation of generation-over-generation economic growth like we have enjoyed for the past half century and now take for granted.

    It is impossible for any system to grow indefinitely. Our own growth has been artificially extended by ballooning debt at all levels, and by duplicitous management/analysis of the economy. If you are to write intelligently about contemporary economics, you must acknowledge the extended period of economic contraction that lies ahead.

    I'm not a doomsday theorist. The degree of contraction isn't going to be uniformly severe everywhere. Many places will come to be better off than they are now. But overall, the longer we stick our heads in the sand, the worse it's going to get.

    This awareness of contraction would improve your analysis. Obama's emphasis on access to medicine, education, and infrastructure makes a lot of sense in the years ahead. Research, not so much. The things we're going to need most have already been figured out.

    April 18, 2011 at 9:35 am | Reply
  6. jr

    You ever try digging a hole for 8 years...then try refilling it in 2? Cut the man a break. He is doing a pretty good considering the mess he was left to deal with. If you think you could do better then run for president...until then shut the hell up. I have an idea. Amend the constitution to allow more than 2 terms for presidents so Clinton can run again. Or legalize marijuana and tax it. Deficit solved. Have a nice day.

    April 18, 2011 at 9:46 am | Reply
  7. Mike McCarthy

    Fareed is one of the brightest analysts on TV. But his refusal to realize that our problem is revenue puts him on the side of the fools and the greed machine. Eliminate the Bush tax cuts for the rich; cut military waste; close tax loopholes; protect US manfacturing; end unneeded subsidies; and reform that awful Bush Medicare Advantage that gives money to Big Pharma.

    April 18, 2011 at 9:47 am | Reply
    • really?

      You talk about Big Pharma, well what about B.O.'s plan, where he meets with big pharma in closed door meetings? And I thought all of this would be on C-Span? Oh, that was while he was running for President, just like closing Gitmo, ending patriot act, ending wars in Iraq, Afghanistan, lowering unemployment.......Yeah, he should be reelected

      April 19, 2011 at 1:26 pm | Reply
  8. KatR

    When people talk about entitlement programs eating up 60% of the budget everyone assumes it's our aging population that is to blame. No one talks about SSD (social security disability) or SSI (federal welfare for those who haven't paid any SS taxes). To qualify for either of these programs you have to be disabled, which leads to additional expenditures for these individuals under the Medicare and Medicaid programs. No one ever talks about these 2 programs that have ballooned in size over the previous decades. They always point the fiinger at retirees. Why are there so many individuals in this country physically unable to work? Some of them have gotten those funds fraudently....but not all. I have a brother-in-law who was born with a condition. He worked for as long as he could but the disease finally got him and he's on SSD and Medicare now. He's not very happy about it and would rather work for a living but that's what life throws at you sometimes. There's no cure for the disease because it's not profitable for medical research to investigate it. The Social Security Administration recently stated that funds for SSD, SSI, Medicare and Medicaid are overwhelming. They also predict that the new health care reform legislation will massively lower medical expenditures. And yet....the erroneous message that it's baby boomer retirees that swell the size of the budget keeps getting put out there. Amazing.

    April 18, 2011 at 9:57 am | Reply
  9. David

    We pledge that we are "One nation" and "indivisible nation" that stands for "liberty and justice for all". Why is it we cannot act like we believe what we pledge?

    April 18, 2011 at 10:17 am | Reply
  10. Barney

    Two big issues that never seem to ge be discussed...

    First, the basis of SS and MC was the assumption that a percentage of the returns of labor would be set aside for future use... that there is an intrinsic value to every product sold which is redirected for future support. When manufacturing went overseas, that contirbution was lost.

    A simple start would be to levy an import tax, equivalent to the SS and MC contributions that would have accrued if the manufacture of a product had occurred in the US. - and leave it in the SS and MC accounts – don't replace it with IIOUs!

    Second point, those SS and MC dollars are being spent here, supporting the economy here, not in Iraq, Libya, Afghanistan, Pakistan, Mexico, Saudi Arabia, Dubai, Egypt, Israel, Gaza... etc., etc...

    April 18, 2011 at 10:24 am | Reply
  11. Scott

    The largest problem with most entitlement program is the insistence that they are one-size-fits-all. If these programs could come up with a blended approach using location, income, and other resources, costs MIGHT be lower, but we will never know because the situations are never adequately explored.

    Supplementing existing insurance, a discounted government insurance, or normal Medicare might better meet the needs of different groups of seniors. The same might be true for Medicaid. Social Security could be reduced, deferred or refused (used as a tax offset) for some high-income seniors. We can raise the SS contribution cap in conjunction with these ideas.

    We need ideas NOT idealogy.

    April 18, 2011 at 12:30 pm | Reply
    • Frank

      Actually, the cost efficiency of insurance programs is directly related to their size. That's why Social Security here and single-payer plans elsewhere are the worlds most efficient insurance programs. But they are "one size fits all."

      April 18, 2011 at 6:08 pm | Reply
  12. GOPisGreedOverPeople

    GOP solution = Soylent Green.

    April 18, 2011 at 3:53 pm | Reply
  13. jj

    Tax the rich

    April 18, 2011 at 4:55 pm | Reply
  14. Frank

    I wish that Fareed had not made the mistake so many do of conflating Social Security and Medicare. Social Security is no more than an actuarial problem. We need to introduce some means testing and slowly adjust the retirement age but, overall, its actually in pretty good shape.

    Medicare, however, is another matter. There are exogenous variables driving it's costs (medical and drug industry profits, for example) and those cannot be controlled by fiddling with elegibility limits and funding formulae. In fact, the real answer to the problem of Medicare, as nearly every industrialized democracy has discovered, is to ensure the entire population in a single program so as to spread the costs (and reduce the influence of those who profit from providing health services). That is Obama's real omission, and our remaining challenge.

    April 18, 2011 at 6:05 pm | Reply
  15. Bob

    Social Security is our most regressive tax. Why do we cut it off on high incomes? I'm not a fan of class warfare and believe you have to incent achievement; however, this one doesn't make sense. The wealthy and right-wing always says they want a flat tax; that's exactly what Social Security, and Medicare/Medicaid taxes are!! Yet, they'll scream bloody murder if you even mention this and they'll use their power to make sure it never happens. If that's the case, then we should means test Social Security and quit this nonsense that it's just an actuarial system. The fact is it's a tax and we need to treat it as such, and it's benefits as tax rebates; not entitlements and not for the wealthy. It's completely unsustainable in the long-run as it is and no amount of adjustment in retirement age is going to fix it. The working and middle-class need it's benefits and that's where it needs to stop.

    I do take issue with Fareed when he says things like "Without such government support, there would be no American semiconductor industry, no early adoption of computers, no Internet and no Global Positioning System". That's the kind of thinking that leads to big government, overspending and debt. The free market would definitely have created all of these things on their own; maybe, in fact, probably before they were via the government.

    April 18, 2011 at 10:15 pm | Reply
  16. Rick McDaniel

    The problem with Obama, is he is all rhetoric, and no substance. he says the deficit is a problem, then he turns right around and squanders hundreds of millions, on anything and everything that crops up, on a moment's notice.

    In other words......words are meaningless.

    April 19, 2011 at 10:42 am | Reply
  17. really?

    Of course it was "intelligent", It was by CNN's Crown Prince Obama

    April 19, 2011 at 1:22 pm | Reply
  18. john williams

    Their is a reason why our government isn't concern about the deficit , it's called the Iraqi Dinar. Did you know our government is setting on trillions of Iraqi dollars , waiting for them to revalue their currency . When that happens the United States will be able to pay the deficit off if they want to and pay some of the money they owe Chine for the all those bogus mortgage loans wall street sold to them . And personally make them selves a lot of money by buying the currency for their selves . Did I mention that when this happens the United States will be getting oil form Iraqi for 30.64 a barrow ? You have to ask your self , If I don't have any money ( the United States ) , what do I have to sell that is worth a lot of money. Answer Iraqi Dinar . Look in to it for yourself , it's a real eye opener.

    April 24, 2011 at 2:03 pm | Reply
  19. barrymillay

    Fareed Zakaria – pimping for Obama and Soros. A plant. A stooge. Bought and paid for by The One. This explains the fawning interview he had with his paymaster, George Soros.

    May 14, 2011 at 8:22 am | Reply
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