Economic Course Correction

Prominent American newspaper columnist Thomas Friedman returned home from the economic forum in Davos in an irritated frame of mind. For the first time, he had heard the term “political instability” in discussions there, not in reference to the usual suspects like Honduras or Russia, but to the United States.

It’s not quite that bad, but there are reasons for concern. Despite the near-collapse of world banking and the ensuing global recession caused by Wall Street, economic recovery still depends largely on the United States. Over the long term, Washington has to get control of its burgeoning deficit problem; over the short term, it must take care not to choke off the economic upturn. The United States is forecasting a $1.56 trillion deficit for 2010. In the midst of the crisis, the United States really had no alternative to going further into debt, but eventually it will have to change course.

Obama is planning to begin consolidation with his 2011 budget projection, but he won’t be successful with just a few cuts here and there. The United States must address its structural deficit or face decades of mounting debt. The remedy is admittedly unpopular. There’s no detour around higher taxes and reforms in the social system. If that’s done intelligently, it doesn’t have to mean devastation. Obama’s proposed health care reforms not only would insure 30 million more Americans, it would also ease pressures on the treasury over the long term. But that threatens to fall victim to a political blockade. Still, the divide between economic stimulus and deficit reduction must be overcome. The alternative would indeed be something like “political instability.”