Martin Wolf, following a week-long austerity debate, looks at fiscal deficits in the USA and predicts they will explode. “This matters for the US and, because the US remains the world’s most important economy, it also matters greatly for the world.” Martin’s forecast is depressing, but realistic and probable. The only hope might be to replace the Republicans with a conservative and fiscally responsible party to oppose the Democrats, but tax cuts are popular, so this will not happen.
My reading of contemporary Republican thinking is that there is no chance of any attempt to arrest adverse long-term fiscal trends should they return to power. Moreover, since the Republicans have no interest in doing anything sensible, the Democrats will gain nothing from trying to do much either. That is the lesson Democrats have to draw from the Clinton era’s successful frugality, which merely gave George W. Bush the opportunity to make massive (irresponsible and unsustainable) tax cuts. In practice, then, nothing will be done. ….
[W]ith one party indifferent to deficits, provided they are brought about by tax cuts, and the other party relatively fiscally responsible (well, everything is relative, after all), but opposed to spending cuts on core programmes, US fiscal policy is paralysed.
Martin Wolf, “The political genius of supply-side economics”, Martin Wolf’s Exchange, 25 July 2010.
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