The Corner

The Bond Market as Deficit Commission

I don’t disagree entirely with Jonathan Chait’s thinking here, though I think he is overestimating what conservatives could hope to get out of a wise-man deficit commission. Chait writes:

It’s insane that conservative view a cut spending and raise taxes deal as a compromise at all, let alone an unacceptable one. Oh, sure, Republicans would love to reduce the deficit entirely through spending cuts. But they have no remotely plausible path to achieving this goal.

 That much sounds about right to me. (Although: Is Chait being too easy on Republicans? They’d love to reduce the deficit entirely through spending cuts? Then why didn’t they do it when they had the chance?) My read on the deficit commission is that serious spending cuts — which is to say, major, radical, Barbara-Mikulsky’s-head-spins-all-the-way-around entitlement reform — isn’t on the table, so, what’s the point? We can’t nuke an alfalfa-research program or the National Endowment for the Arts, and we’re going to seriously reform entitlement spending?


Even if we could imagine a world in which narrow congressional political self interest were set aside, the numbers don’t look good. Forgive me for this back-of-the-envelope stuff, but I was an English major: Taxes are, on average, what, 18 percent of GDP? Spending is now 45 percent of GDP and going up? So, if Team Williamson agrees to a (roughly) 50 percent real increase in taxes, to around 25 percent of GDP, Team Chait still has to agree to something close to a 50 percent cut in spending, to around 25 percent of GDP. I’m not good at Hill-type political analysis, but I don’t see a model of American electoral possibilities that makes that happen.


What will make those spending cuts and budget balancing happen? When the market stops loaning the government money and starts punishing the government for printing it. What does that look like? This.


CORRECTION: These numbers aren’t right; brain failure on my part. The revenue-spending gap is not as large as I’ve indicated here. Will have more on this in a bit.


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