Deficits forever?
So if liberals can’t win, conservatives can’t win, and the two sides can’t strike a deal, how are we actually going to get our fiscal house in order?
I think one all-too-plausible answer is that we aren’t. That might mean a genuine debt crisis, a near-default scenario that forces a combination of spending cuts and tax increases, perhaps with some swift inflation worked in, that’s uglier than any grand bargain either side would countenance. But given the resilience of global confidence in the United States over the last two years, it might just mean living with structural deficits that drag on growth for years and decades to come. Indeed, if I were rank-ordering scenarios for the American future right now, the latter possibility would probably rank highest: Neither a massive crisis nor a sweeping legislative solution, but an ugly equilibrium in which muddling-through politicians win enough small victories and reach enough small deals to gradually stabilize the debt-to-GDP ratio … but at a level that all-but-ensures a generation or more of economic stagnation and lurching, shortsighted, crisis-driven domestic policymaking. …
Instead, the option of some sort of can-kicking may always be available, and so a broader solution to our fiscal problems will require more from politicians than just defensive maneuvering and an assumption that the public will choose their side when push really comes to shove.
Blowback
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A couple of points:
-The only reason the US is “resilient” is because of American conservative push-back. Without opposition the Left would have tanked this country already, decades ago.
-The “structural deficits” that “drag” on growth is the endgame of 80 years of economic Progressivism. Lower and middle-income families hardest hit.
visions on January 8, 2013 at 6:58 PM
Japan had a lost decade; we’re looking at a lost half century.
Or more.
SteveMG on January 8, 2013 at 6:59 PM
I tend to agree with this viewpoint, that politicians will lack the political will what needs to be done, therefore engaging in never-ending procrastination.
blatantblue on January 8, 2013 at 7:01 PM
The Paul Ryan plan!
astonerii on January 8, 2013 at 7:09 PM
No.
See Greece (collapsing) and Japan (soon-to-collapse).
Norwegian on January 8, 2013 at 7:10 PM
We aren’t.
Is that sarcasm, or did you sell this account?
DFCtomm on January 8, 2013 at 7:18 PM
As long as the world continues to buy US debt, the US will continue to live beyond its means. No big tax hikes, no spending cutting. The fact that the US can print its own money to pay for its own bills, is what makes the US welfare state possible. And as much as that should cause huge inflation, it doesn’t. Since the US dollar is the only currency that can function as a reserve currency, there is never a shortage of buyers for US debt. So what should be theoretically unsustainable, is in fact, unchangeable.
keep the change on January 8, 2013 at 7:24 PM
That’s fine, except the FED has been buying most of the treasuries in a desperate attempt to keep yields down.
DFCtomm on January 8, 2013 at 7:29 PM
Japan has had a lost three decades because they kept up the spending. Our depression will continue until we cut ours.
Count to 10 on January 8, 2013 at 7:30 PM
This isn’t going to happen. The central planners have done a good job kicking the can down the road but we’ve reached the end of that road. We’re starting to see economies like Greece, Spain, and Jamaica collapse. The rot is going to keep creeping upwards into the Euro core and eventually hit us. We’re five years into the crisis now and things are getting worse, and faster. They are not “stabilizing,” no matter how much Obamaphiles wish otherwise. I expect the US to start having serious problems sometime in 2015-2016.
Doomberg on January 8, 2013 at 7:30 PM
QE Infinity!!!
We’re Rich Beotch!!!!!!!!
trs on January 8, 2013 at 7:37 PM
These Lefty morons aren’t capable of playing checkers, let alone chess, with their static, Stage-1 thinking.
Drop all taxes in America to 1% and watch the greatest economic boom in history occur almost immediately before your very eyes — with perhaps as much or more “revenue” generated as is presently being confiscated by governments from wealth producers.
[And then watch the rest of the world replicate our success ...]
The problem is that the USD can be replaced by another reserve currency; for a few years it looked like it might be the Euro, but it’ll likely be the Chinese Yuan (Rimnimbi) … then we’re REALLY doomed!
ShainS on January 8, 2013 at 7:41 PM
let it burn
bannor on January 8, 2013 at 7:44 PM
Michael Moore, is that you????
besser tot als rot on January 8, 2013 at 7:45 PM
Oh, they were not talking about Paul Ryan’s road map to my daughters total enslavement?
I guess I should have read more than the header.
astonerii on January 8, 2013 at 7:45 PM
I worry that you are correct. And hope that you are not. My kids are going to be looking for jobs starting in about a decade, so hopefully we’ll have our sh*t together by then.
besser tot als rot on January 8, 2013 at 7:46 PM
The problem is a stabilized debt-to-GDP ratio is only possible if there are significant cuts in either discretionary or welfare spending (preferably both). A fully-funded welfare state will consume over 20% of GDP (or if you prefer to think in historical terms, more than the average cost of the entirety of federal government between WWII and 2008) in the next couple of decades, and its share will continue to only grow.
Steve Eggleston on January 8, 2013 at 7:47 PM
Am I the only one who thinks that the adults who are sticking it to the future generations should be really worried? Since when do the young and strong allow themselves to be slaves to the weak and old? I think the Boomers-Gen Y are going to be in for a rude awakening in their twilight years.
besser tot als rot on January 8, 2013 at 7:49 PM
Not likely. The world will not invest its wealth into a non-transparent regime, especially one that is militarily adversarial with the US, and one that may collapse from political unrest in the next several decades. China is not a viable alternative. In fact, China is regarded as being hugely in debt and facing an inflationary depression. Moodys says that 1.5 trillion in loans are underwater in China. Worse, China, being a regime, has no rule of law, nor published internal auditing of its financing. That alone disqualifies it from being a reserve currency.
Other countries, that are open and stable, like Canada, are far too small to act as a reserve currency.
keep the change on January 8, 2013 at 7:57 PM
It’ll go through faster than that. They’ll be aborting themselves out of existence.
nobar on January 8, 2013 at 8:12 PM
Let’s just do what Texas did.
davidk on January 8, 2013 at 9:45 PM