Let us repeat for emphasis: The crisis we fear, when investors no longer will finance our deficits, doesn’t begin with a failure to cut entitlements or raise taxes on the rich. It begins with an unexpected, persistent failure of the economy to grow.
This would quickly precipitate the political class into a dilemma that ends naturally in the printing of money.
Nothing proposed by the negotiators in terms of tax hikes (Mr. Obama’s agenda) or spending cuts (the alleged GOP agenda) would really help. We kid ourselves if we think we can settle these issues today. Arduous and bitter politics over taxing and spending will be our lot for decades to come.
One thing would make a difference: whether we can get the growth machine going again. Policy-wise, one exception to present futility would be true tax reform, which both parties have paid lip-service to, unconvincingly. But we won’t get true tax reform out of a divided Washington with Mr. Obama in charge. Mr. Obama has a copybook agenda, to expand government regardless of the historical moment the country finds itself in. He’s sticking to it.