Why We Can’t Reach A Compromise On The

Arnold Kling nicely simplifies the issues that must be addressed in order to get to a sustainable fiscal situation:

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 berserk. It contemplates leaving spending at somewhere between 21 and 22 percent of GDP, which drives Republicans berserk.

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.

Both parties are hamstrung by the fringes of their bases. The Progressives insist on driving the country towards a European style economy featuring intrusive central government control of the economy coupled with massive redistribution of incomes, while the Tea Party types cling to a vision of returning the country to a Nineteenth Century rugged individualist model. Neither outcome is preferred by the majority yet the math of electoral politics dictates that each party defend the extreme view.

Kling is most probably right that a crisis is what will precipitate meaningful change. That it will most likely result in severe reductions in entitlements would suggest that Democrats have the most to lose by declining to compromise. That neither party seems inclined to move towards the other probably speaks to their preference for maintaining their existing power as opposed to seeking a mutually acceptable solution.

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