Okay, smart guy, I can imagine a reader of the preceding post saying, you’ve just explained why you don’t think a grand bargain is going to resolve our fiscal dilemma any time soon. But just last week, you were explaining why the Democrats’ willingness to define “rich” upward made it seem less likely that they would be able to raise tax rates high enough to pay for the government they want, and in the same post you noted the conservative, entitlement-reforming path to fiscal sustainability also has “an air of fantasy about it.” 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.