The Alternate Universe Problem
By Arnold Kling
At the moment, I am very pessimistic about the prospects for the United States solving its fiscal problems without a crisis. Given that we have divided government, a reasonable long-term budget will require a compromise. But the two sides seem to live in alternate universes.
The Republicans’ alternate universe is based on the belief that government spending ought not to exceed its historical average of about 20 percent of GDP. You can’t get future spending down to that level, however, without really major cuts in future spending on Social Security and Medicare. Much as I would like to see those programs phased out completely, neither I or nor anybody else can claim to have won an election on that platform.
The Democrats’ alternate universe is based on (a) the belief that the rich are not paying their share of taxes and (b) with Obamacare passed, the rise in health care spending as a share of GDP is as good as arrested. So they see no need to change the status quo on entitlements.
I think that a sensible compromise would be Simpson-Bowles. This would make some needed changes to entitlements, which drives the Democrats beserk. It contemplates leaving spending at somewhere between 21 and 22 percent of GDP, which drives Republicans beserk.
I go back and forth as to which side is being more self-defeating. Republicans, who won’t agree to a 21.6 percent of GDP, with the result being that we stay on a path that takes spending much higher. Or Democrats, who won’t agree to reductions in future entitlements, with the result being that we will be forced to cut entitlements in the future, during the inevitable fiscal crisis.