What Won’t Happen

Matthew Yglesias and Tyler Cowen engage in dueling dystopic counter-predictions (i.e. what won’t happen). Matthew Yglesias believes with healthcare reform, the ACA, the welfare state in the United States has reached its zenith:

Realistically, does anyone think we’re going to increase the overall size of the government faster than that? [ed. referring to the CBO’s projection of federal government share of GDP] I sure don’t. And yet there are actually some areas in which I’d like to see the government doing more—specifically nutrion, early childhood education, infrastructure, and probably K-12 education writ large. But on this chart we’re predicting a slow-but-steady decline in non-health care non-Social Security spending.

So the future of American politics is necessarily going to be about things like making the tax code more efficient, finding areas of government spending to cut relative to projection, and thinking of policy measures that will help people that don’t involve spending more money.

Tyler Cowen in turn responds with 12 bullet points that can largely be summed up as very little will change for the foreseeable future.

There is a minor problem with MY’s projection. It’s based on the CBO and not even the CBO believes it. And the Social Security system’s auditors took the unusual step of filing a report dissenting with the Social Security Trustees so we can be fairly confident that the CBO’s baseline projections won’t hold up.

I don’t honestly know what’s going to happen. I’m pretty convinced that anything that can’t be sustained won’t be. I do think that the CBO’s revenue projections are going to look astonishingly rosy. Heck, they looked rosy before the ink was dry. The Federal Reserve has already revised its growth estimates for this year downwards twice, to the point where it’s beginning to resemble reality and the reality is grim—growth under 2% as far as the eye can see.

I think the best we can hope for is for equities to hold their own—the alternative possibility is a major downwards correction. Can anyone really believe that bonds are ready for a rally?

Many public pension plans assume incomes in the vicinity of 8%. With the interest rate near zero (and looking to stay that way for another couple of years) and flat everything else how can that be?

So I’ll present a couple of other things that I don’t think will happen.

1. We can’t have slow or no growth, increasing healthcare costs, and an increased base of government expenditures for healthcare.
2. We can’t borrow (or mint or quantitative ease) our way to prosperity and government doing its darnedest to top 30% of GDP.
3. We can’t solve our fiscal problems solely by cutting the defense budget.
4. We can’t have slow or no growth and meet the public pension obligations we already have let alone expand those. And rising federal, state, and local government payscales automatically increase pension obligations.

I welcome the counter-predictions of others in comments.