Although Matthew Yglesias says we’ve entered "an era of semi-permanent fiscal policy crisis," there’s still hope to think the next round of budget negotiations — in two months when the U.S. Treasury is unable to borrow money and automatic spending cuts kick in — just might be a little bit easier.
1. The big reason for optimism is that the issue over tax rates is settled. Republican resistance to ever raising taxes on anyone was finally broken earlier this week. Taxes were raised on the wealthiest Americans and will bring in about $620 billion in new revenues over the next decade.
2. House Republicans have already signaled to Democrats that they would consider an overhaul of the tax code — mainly by closing loopholes and limiting deductions — as a way to raise additional revenues to reduce the deficit.
3. President Obama has already offered a major concession on how the government calculates cost of living adjustments to Social Security and other entitlement programs. By moving to a "chained CPI" calculation, analysts predict the government would save more than $100 billion over the next decade.
There are certainly many more complicated and controversial issues to be hashed out, but the seriousness of reaching an agreement in two months might also spur greater cooperation. The "fiscal cliff" was a creation by politicians, not markets, and going over it — as we did for more than a day — really didn’t amount to much. But the next deadline involves the full faith and credit of the federal government. Reneging on our debts would have an immediate punishing effect by the financial markets and possibly throw the entire global economy into crisis.