It seems to me that, on any reasonable assessment, the gulf between the parties on fiscal policy is becoming more difficult to bridge, not less. Pessimism on that score seems entirely justified, so it’s hard to argue with S&P on at least that specific point. I do think the outlook for fundamental fiscal agreement before the 2012 election is bleak. After that, things could change dramatically for the better, or not. In any case, whether S&P is being fair or unfair to move at this juncture, the political standoff we’re in is, sadly, necessary right now, despite its costs.
Americans are in the midst of a great debate on the future of our society. Everyone seems to agree that the outcome of the next election will have a decisive impact on what kind of country we are–or become. Will we retain our distinctively American characteristics, or move irrevocably toward the European model? A “grand bargain” on taxes and entitlements right now, would push us another big step down the European path. Like as not, it would simply set a precedent for ever more such “compromises” as the baby boomers continued to retire. By the time the entitlement crisis was fully “fixed” we’d be taxed at Scandinavian levels.
At any rate, in the context of President Obama’s broader transformative efforts, it’s impossible to trust that a “grand bargain” would do anything other than enable the president’s ambitious plans, which are in no way agreed upon yet by the public at large.
It’s going to take time, debate, and above all elections to resolve this conflict. Supposedly, our squabbling political parties are incapable of compromise. In fact, we have serious disagreements on first principles that cannot and should not be resolved in the absence of a more fundamental determination of which way the country wants to move. Whether or not Barack Obama is reelected will be the single most important factor determining the direction we take. Nothing much will happen until that question is resolved, S&P notwithstanding. And for all the problems it causes, that is the way it has to be.