Conor responds to my comment:
Amen. I'm not blaming Obama yet because he is simply not to blame. But he needs to address this soon, and address it structurally. Noah Millman gets this. The answer is there, but politically hard. It would look something like this: raise the retirement age, reform taxes on the 1986 model, cut defense (how many troops do we have in Germany?), enact a VAT, and sell public land. I actually think it would work to Obama's political advantage if, with a recovery in hand, he proposed some serious answers to the deep fiscal dilemma we face after Bush. The debt is his primary political liability right now – and the demagogues on the Hannity-Palin right have no scruples in lying about who is responsible. Noah on tax reform is particularly strong:
The United States has one of the highest corporate tax rates in the world, and brings in less revenue (percentage-wise) than countries with much lower rates. We have an income tax that is riddled with deductions that undermine its purported progressivity, and we rely on increasingly steep progressivity to justify every additional change to said code. A 1986-style reform that eliminated many deductions and lowered rates would not only be a likely booster of the economy, but would probably raise revenue – certainly on the corporate side. Any such reform on the income tax side would need to eliminate or phase out the mortgage interest deduction. This would seem to be spectacularly ill-timed given the poor state of the housing market, but in fact reflating the housing bubble would make our economic problems worse, not better; we need to tackle the overleveraged homeowner directly, not by means of asset-price inflation. Meanwhile, redirecting capital away from housing and towards more productive endeavors is exactly what we want to do.
The Dish 