The Grand Bargain Is Metaphysical Not Economic

Moneybox
A blog about business and economics.
Nov. 29 2012 10:28 AM

The Grand Bargain Is Metaphysical Not Economic

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To get a little wonkier in the case against grand bargains, I think you have to start with the CBO chart above. The thing to do is to ignore the alternative fiscal scenario line and focus on the CBO's "baseline projection."

The baseline project is funny term for The Laws of The United States of America As They Exist On The Books Right Now. And those laws clearly say that we're heading for a period of rapid debt reduction. Obviously if we're all focused on that line, it's very strange to be running around talking about the need to write new laws that will program us for debt reduction. The laws we already have program us for debt reduction.

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So now focus on the alternative fiscal scenario line. What's that about? Well, it's a kind of CBO guesstimate about politics. It assumes the full extension of the Bush tax cuts, it assumes that Congress will keep passing "doc fix" bills to keep Medicare reimbursement rates high, it assumes congress will pass "AMT patches," it assumes some other stuff. Not terrible assumptions by any means. But these are assumptions about politics, not about economics. And the problem of the alternative fiscal scenario is a problem of politics, not an accounting problem. But if the problem is that the CBO thinks the laws will be changed in the future in a way that increases borrowing relative to the current laws, then changing the current laws can't solve the problem. The only way to make the alternative fiscal scenario go away is for the CBO to change its internal bureaucratic processes and stop publishing the alternative fiscal scenario.

After all, the AFS consists of the forecast that congress won't tolerate taxes or lower Medicare spending. But all proposed grand bargains are proposals to raise taxes and cut Medicare spending! Passing an agreement to raise taxes and cut Medicare spending doesn't eliminate the AFS forecast that congress will cancel all tax hikes and Medicare cuts unless it specifically directs the CBO to stop assuming that, but if the CBO stops assuming that tax hikes and Medicare cuts are politically impossible then the problem goes away under current law.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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