Against grand bargains: A long-term deficit deal is impossible, and the quest for one is hurting us. - Slate Magazine
The grand bargain is impossible because it’s not possible for today’s Congress to bind the hands of future congresses. In 1997, for example, President Bill Clinton and House Republicans struck a grand compromise that reduced capital gains rates and expanded health care for children. By 2003, the budget framework of 1997 was completely obsolete, thanks to two rounds of Bush tax cuts and two new wars. The deal between Clinton and Newt Gingrich didn’t bind new leaders and didn’t foresee new circumstances. Nothing members of Congress agree to in 2012 or 2013 is going to change the fact that the 2019 budget deficit will be determined by the will of the politicians in office at that time and the situation they face.
And the current situation is that weak demand is giving us low and stable inflation plus low interest rates. This is not a problem that deficit reduction could solve. The sensible policy solution is to focus on the illness we have right now, and let decisions about long-term tax hikes and spending cuts be made later, when the patient is healthy.
When financial markets do eventually demand deficit reduction, they’ll want to see immediate tax hikes and spending rollbacks. That’s what happened repeatedly during the later Reagan years, in the big 1990 and 1993 budget deals, and in the eurozone periphery. It will be unpleasant when it happens, but it hasn’t happened yet, because the markets recognize that stabilizing the economy is more important. Simply promising that future congresses will do things differently impresses nobody. The various spending caps in the Simpson-Bowles plan no more prevent future spending than the 1997 budget deal prevented the Bush tax cuts, the post-9/11 hike in military spending, or the outlays associated with No Child Left Behind or the Medicare prescription drug benefit.
The only grand bargain that would work would be an abolition of democracy. How much the government should spend, and on what, and where the money should come from is the essence of politics. Corporate leaders’ hazy desire for long-term “certainty” is understandable to a point, but it’s completely impractical.