There is an obvious economic policy mix for the current moment: bipartisan agreement on long term cuts in entitlements and defense and short-term quantitative easing and help for the housing market. That's Clive Crook's view and it makes a great deal of sense to me. But he deftly sums up why it won't happen:
[W]hat ought US fiscal policy to do? It should combine renewed short-term stimulus (in forms that subsidise jobs) with measures to reduce borrowing (revenue increases and entitlement reforms) in the longer term. How could something so obvious be controversial? In a way, in fact, there is no controversy: Democrats and Republicans are agreed in rejecting this out of hand.
This is, to my mind, where Obama has failed. In much of his decisions, even when I have disagreed, I have seen the policy rationale. Here, I see only a political rationale. By refusing to grasp the nettle of the debt in his State of the Union, Obama ceded the initiative to the GOP. They typically over-reached by ruling out any tax increases at all and ending Medicare years down the road. Obama and the Dems will benefit politically from this in the short and medium term. But it remains my view that Obama's decision to duck backing his own deficit commission was a mistake.
I wish there were a reasonable opposition party to negotiate with. But a refusal even to use tax reform as a way to increase revenues is reckless. Proposing such a radical overhaul to Medicare renders it politically dead for now and the foreseable future – which is not pragmatic reform; it is ideological posturing. But I also wish Obama were not as cautious. Many of us backed him because he promised to put policy before politics. If this debt crisis is not a moment for exactly that kind of candor, when is?