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Obama’s feeble budgetPublished: February 15 2011 22:20 | Last updated: February 15 2011 22:20

Barack Obama’s budget is a weak response to the fiscal challenges confronting the US. His administration as good as admits it. The White House says further spending cuts and tax increases will be needed to restore long-term public finances, but that just now the political conditions are wrong. A new spirit of fiscal co-operation must arise first, it says; meanwhile, this budget buys time.

Maybe, if the administration (and the country) is lucky. But the US had better hope that another recession does not come along in the next decade or two. If one does, the needed fiscal stimulus would raise the US ratio of debt to gross domestic product to well above 100 per cent. Even if all goes well, a debt ratio semi-stabilised at just under 80 per cent of GDP, which this budget envisages for 2021, runs the risk of unsettling financial markets at any time.

The president’s budget would cut barely $1,000bn from projected deficits over the next 10 years, and leave total outlays well above historical averages as a share of the economy even by 2021. Taxes are virtually untouched. The president’s own fiscal commission called for deficit reduction almost four times larger.

The White House has made an electoral calculation. If the president took the lead on taxes and spending, he would have to break one of his own election promises and open himself up to attacks from Republican opponents of higher taxes.

Instead he can play for time, letting the GOP’s radicals move to hack away at popular programmes – cutting too soon, and more deeply than necessary, because of leaving so much spending and all taxes off the table. Let them suffer the political backlash, goes the president’s thinking.

It could work – and as long as the backlash is only political, that is fine. But this formula for fiscal paralysis is also a reckless gamble with the economy.

The US must hope that, with the president abdicating leadership, somebody else will step up. Vision is not to be expected from the House Republican zealots, who are less interested in reducing borrowing than in severely shrinking the government’s role – something that US voters would not want if they saw what it meant. Look instead to the Senate, where moderate Democrats and relatively calm Republicans may be able to forge the needed consensus for fiscal restraint.

Evidently, it will be that or nothing. What a pity Mr Obama is unwilling to help.

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