Barack Obama's life was so much simpler in 2009. Back then, he had refined the cold act of blaming others for the bad economy into an art form. Deficits? Blame Bush's tax cuts. Spending? Blame the wars in Iraq and Afghanistan. No business investment? Blame Wall Street. To Republicans, the rhetoric of blame had all the charm of a chainsaw on stainless steel. From Democrats it drew applause.
Two years on, the act was already wearing thin. But when Standard & Poor's downgraded U.S. debt, the politics of blame came full circle. Coupled with an unemployment rate stuck at 9%, the burden of America's staggering economy has become Obama's ball and chain, dragging his re-election prospects even deeper into the mire. On Aug. 13, his Gallup approval rating reached an all-time low.
In response to the downgrade, the Obama team did what came naturally it pointed the finger at someone else. Treasury Secretary Tim Geithner blamed S&P, arguing, "They've shown a stunning lack of knowledge about basic U.S. fiscal budget math." Obama campaign strategist David Axelrod blamed the Tea Party. Seriously?
They fail to understand that methodology and debt-limit votes are far less important than our irrefutable budget shortfall. Trustees estimate the unfunded costs for Medicare and Social Security at roughly $30 trillion, yet Obama proposed a budget that contained $9.5 trillion in new deficits over the next 10 years. These stark facts prompted S&P to announce an imminent downgrade unless budget talks produced $4 trillion in deficit reductions. When the package fell short, it had no choice. Other ratings agencies have maintained our AAA status, although Moody's has established a "negative outlook."
S&P also recognized that the $2.1 trillion debt-limit deal could easily be overwhelmed by small changes in interest rates or economic growth. As economist Larry Lindsey observed, if today's 2.5% cost of government borrowing returns to the historic average of 5.7%, federal debt over the next decade will increase by roughly $4 trillion; and if annual economic growth falls just 1% below White House forecasts through 2014, debt will increase by another $3 trillion. That's the kind of budget math that even a lifetime bureaucrat like Geithner should understand.
For consumers, the immediate economic impact of a downgrade remains small. Although a lower rating on debt should signal higher risk, interest rates on five- and 10-year bonds actually dropped following S&P's announcement. But for the President, the political consequences are what count. The downgrade occurred on his watch. It's a historic first. And it's a problem that won't go away anytime soon. It will define the tone and substance of the 2012 campaign.
The most powerful antidote to such a bleak prognosis is economic growth, but the Administration remains paralyzed by a "spending = stimulus = growth" mentality. The trillion dollars spent to push "shovel ready" projects, bail out state budgets and fund other priorities is long gone. The economy is stagnant, and the debt remains.
The President has paid lip service to tax reform and regulatory overhauls that would create a stronger environment for long-term investment. But his actions tell a different story. Obama's view of the tax code is inherently political: Whom can we hit next? Energy companies, jet owners, bankers? Instead, the question should be how to promote economic efficiency by raising revenue without trying to manipulate corporate or personal behavior. Serious tax reform, however, would take real political courage.
On regulations, the Administration pursues new rules on ozone pollution, fuel efficiency, collective bargaining, derivatives trading, carbon emissions, lithium-battery transport, bank-capital standards and financial-services-consumer protection, among others. The National Labor Relations Board continues its effort to dictate where a private company, Boeing, can or cannot open a new manufacturing facility. Yet Administration flacks still cringe at the words "regulatory uncertainty." They just can't see the forest for the trees.
In New Hampshire, and in most national polls, Mitt Romney maintains an edge in the Republican presidential primary. Four years ago, he failed to capitalize on his business experience in the midst of a struggling economy. It's a mistake no Republican candidate will make this time around.
The election is still 15 months away, but politics thrives on simple, clean messages, something that played to Obama's advantage in 2008. Stagnant unemployment and the loss of America's AAA rating are as simple and tough as they come. This is the economy on Obama's watch, and there's no one left to blame.
Sununu is a former Republican Senator from New Hampshire