Waiting for a Debt Crisis

President Obama's long-term fiscal strategy is to appoint a commission to figure out a long-term fiscal strategy, quipped economist Greg Mankiw this weekend in the New York Times. That's fair, I think, but it's not as though Congress is teaming with plans to control the debt-to-GDP ratio, itself (Paul Ryan, notwithstanding). Is the United States particularly poor at planning ahead with respect to paying down the debt?

Catherine Rampell wrote a great piece looking at how other countries tie their governments to the mast of fiscal responsibility. Germany and Switzerland have rules about how much they can spending based on the economy. Sweden and Denmark have fiscal policy "counsels." Brazil has a Fiscal Crimes Law that can actually lock up a politician for profligate spending. Yikes.

Her last point sounds about right: "The most foolproof way to impose fiscal discipline may be to instill a sense of crisis." I suppose you argue say we're not there yet. True, the sound of a $1.6 trillion deficit is a little terrifying. And the prospect of trillion-dollar deficits into the future is more than a little terrifying. But interest rates are still low. The bond market seems to believe that in a decade, the United States will have something like a fiscally responsible government and a rapidly growing economy. (Well, that or the low rates represent a "flight to safety" in light of other countries' even more rocky fiscal situations.) That's not to say that the bond market is right, or even reasonable. If anything proves the markets' lack of clairvoyance, it's the recession we're still feeling the aftershocks from. My guess is that we won't see much real action on the long-term debt until lawmakers begin to feel squeezed by much more bearishness in the US bond market.