In many respects, the expansionary phase of big government is coming to an end, and quickly.
...It is not that fiscal conservatives have won a grand battle of ideas, but rather that governments realize that the bills are coming due.
There seems to be more awareness now of what I call the two weeds that have grown in Progressive soil: entitlement spending; and compensation of unionized public sector workers. Greece seems to be an object lesson in what can happen if these weeds are left untrimmed for too long.
The advocates for more fiscal stimulus today are not connecting with the public, which views stimulus as the opposite of clever economics. Many people see larger deficits as imprudent and immoral.
What interests me is the difficulty that our political system has with crafting any sort of budget compromise. For example, I pointed out that an explicit reduction in future deficits could be linked to an increase in near-term deficits, potentially satisfying both Keynesian doves and fiscal hawks. But that is not on the table.
Eugene Steuerle pointed out at lunch last week that there is an adverse equilibrium in politics today. Democrats think that if they agree to spending cuts to reduce the deficit, then Republicans will take advantage of that by passing tax cuts. Meanwhile, Republicans think that if they agree to tax increases to reduce the deficit, then Democrats will take advantage of that by raising spending. The equilibrium strategy is for neither party to compromise on deficit reduction.
At that same lunch, William Niskanen suggested that President Clinton was headed toward proposing real reform of Social Security, moving it in the direction of the Chilean model, but the Monica scandal ended that initiative before it could get started. I guess you could say she sucked all the air out of the room, so to speak. So here we are.