What you are saying may sound good, but is not a real life solution in the United States. Talking about the medium term means never as when the medium turns into near term the politicians down the road say we never signed off on that.
That's exactly why there would have to be automatic mechanisms in place to assure that the fiscal consolidation takes place. The so-called "doctor's fix" which waived an extremely modest measure of fiscal discipline--an almost completely painless one in the larger context of the budget--highlights the need for credible mechanisms. Were a supermajority required to waive such measures, it would be more difficult for policy makers to retreat from even modest measures of fiscal discipline.
As we have seen from prior problems with social security we have been able to solve this problem pretty well and my sense is we will fix it again. Medicare is more problematic and we will have to have some real health care reform to reign in costs.
I'm reasonably optimistic that the Social Security issue can be resolved. At this time, I see little appetite for meaningful effort to attack the excessive cost growth problem that continues to undermine the fiscal viability of Medicare/Medicaid, not to mention the larger U.S. health care system.
Republicans will attack certain domestic spending which may produce $100 billion. Then we will have to get real about our role in the world and really cut back on defense. Farm subsidies also need heavt review as well as federal payroll and pension costs.
IMO, all discretionary programs, including Defense, as well as the mandatory spending programs need to be the focus of a careful and rigorous review. Policy outcomes--how well programs actually achieve their intended benefits--needs to be given greater weight. So does long-term benefits from programs e.g., education, with investments that yield actual benefits being given greater weight than other programs that amount to consumption with no future benefits.
Clearly this will cost jobs. But deferring it for some other congress down the road is what has gotten us in this mess.
I wasn't sufficiently clear. I was not arguing to defer addressing problems, but to defer the larger share of spending reductions/tax hikes for another year so as to assure that the economy is on a sustainable growth path. Modest deficit reduction should be plausible in 2011. More significant deficit reduction should probably commence in 2012, and a credible plan should lay a path for tackling the imbalances associated with the mandatory spending programs.
We have had an economy on the debt drug for the last 20 years. The deficit as a percent of GDP is running about 10% while our economy is growing about 2%, not sustainable. We have the Fed monetarizing this year's deficit which should be a sign we are running out of wiggle room. Just think if governments lending us money demanded interest rates like being charged to Greece or Ireland. The interest costs would then go up by several hundred billion.
I don't disagree. Household debt (slowly being reduced via deleveraging but still at near-historic highs) and public sector debt (particularly when the long-term imbalances are considered) are challenges. While the U.S. is more debt tolerant than many other countries, meaning its debt burden relative to GDP can be higher than in those other countries before a crisis erupts, it is not immune to the effects of excessive debt. The risk of a full-blown debt crisis or partial default (possibly via inflation and/or currency debasement) will begin to increase in the medium-term if the U.S. remains on its present policy trajectory. In fact, Germany, China, and Brazil already worry that the new round of quantitative easing is actually a backdoor dollar devaulation strategy.
I think the results of the election of just two days ago says that the game is up for congress and the President. Either get out house in order or you get fired.
Although the public cast its vote seeking a better economy (exit polls) and expressing concerns over fiscal policy (exit polls), the big question remains as to whether the public would be willing to bear the sacrifices that would become necessary for efforts that actually would eliminate the nation's long-term fiscal imbalances. More often than not, it takes a crisis to bring about a fundamental change (a worrying lesson of history). Already, even as the financial crisis fades into the recent past, its lessons are also fading. As the oil price spike of 2008 is some two years into the past, neither political party is serious about addressing the nation's energy-related vulnerabilities. Of course, exactly the same kind of amnesia resulted when each of the 1970s' oil shocks faded into the past, so that kind of bipartisan neglect is not surprising. Even when it comes to trade imbalances, the popular but incorrect narrative that China is to blame rather than a closer look at emergent comparative disadvantages prevails. The bottom line is that although the electorate expressed its wishes at the ballot box, there remains no assurance that the electorate will actually be willing to entail the sacrifices necessary to address some of the nation's major problems. History does not offer a great deal of assurance on that front. Public opposition to austerity in Greece and a small increase in the retirement age in France is the norm. Lack of serious opposition in the UK is more often than not the exception, and it still remains to be seen how the UK's public will be reacting a year or two down the road when austerity has been underway for some time.