After making news earlier this week ^[1]for promising to make Social Security and Medicare reform a “central part” of his plan to curtail federal spending, President-elect Obama has pledged to hold a “fiscal responsibility” summit ^[2]focusing on entitlement reform ^[3]. Although the devil is in the details, facing up to the long-term mess early is a good start. Obama certainly outlined the current situation well:

What we have done is kicked this can down the road. We are now at the end of the road and are not in a position to kick it any further… We have to signal seriousness in this by making sure some of the hard decisions are made under my watch, not someone else’s.

As important as it is to admit a crisis exists, that’s the easy part. Actually crafting a workable solution will be more difficult. Let’s remember both President Clinton and President Bush began their presidencies with similar optimism about Social Security and health care reform. Both met with failure.

To start with, President-elect should heed the advice from economists on the left and the right ^[4] to implement strong budget process reforms. ^[5] Specifically, he should:

1. Enact explicit long-term budgets for entitlement programs to stop them from growing on auto-pilot and reduce the favorable treatment these “mandatory” spending programs receive compared to other expenditures.
2. Use triggers and other automatic adjustment mechanisms to help constrain spending growth.
3. Show the long-term obligations of entitlements (which currently amount to $42 trillion) in the federal budget and require Congress to have an up or down vote on any legislation that would increase those obligations.

This overdue change would bring make Members of Congress accountable if they continue to kick the can down the road or if they make the situation worse by passing expensive new programs. If implemented correctly, entitlement reform would certainly be change everyone can believe in ^[6]. Of course, this is just a first step in solving the problem, but with deficits expected to surpass $1.2 trillion ^[7]in 2009, taking these programs off auto pilot should be a no brainer. And, with exploding spending driving trillion dollar deficits as far as the eye can see, entitlement reform is more vital than ever. The fact that President-elect Obama is taking this issue seriously is certainly a good sign. All eyes will be on the President, hoping he follows through with his promise.