If this was an action movie, and the US was under a known threat of attack, there would be multiple military missions, conventional and unconventional, trying to prevent a terrible outcome. You can probably picture it--the stalwart hero who does everything he can think of to stop the devastation.
Well, we are under that kind of threat. We don't know how long we have to defuse the bomb, this bomb being our high and growing level of debt. And unlike in an suspense movie, I don't want to take any high stakes gambles. I don't want to try to shock our economy into a burst of activity that saves us, because what if it doesn't work? Shock treatment always costs a lot, whether direct government stimulus spending or tax cuts. The costs and risks are too high, and there is a good alternative.
We can take a conservative course. We can match our spending to our income. We haven't done that on a federal level in 11 years, and it'll be hard to do in just one year without causing painful shocks to our economy. However, we can put ourselves on a multi-year reducing diet plan. We can plan that in year 1 we will do this, in year 2 even more, etc.
Sticking to a budget can be hard for a family unless the family has 1) discipline and 2) some emergency money. The US is a wealthy country, so having some emergency money isn't really the problem. Discipline definitely is.
Right now, most of the country agrees that we have economic problems and rapidly increasing debt. In fact, that was the consensus at the beginning of 2010 when Obama created the deficit commission.
Unfortunately, there wasn't a consensus on the treatment. Was it more important to stimulate the economy to grow, and if so, using what method? This lack of consensus didn't hamper the deficit commission. As they studied the problem, most of the members came to a consensus, which became the Simpson-Bowles plan. Ultimately, the Republican and Democratic chairs (Simpson and Bowles) and 9 other committee members representing both parties approved the plan. However, there were dissents on both the right and the left. Obama damned the plan with faint praise, and Congress didn't act on it. This was an incredible waste, because a plan that can get bipartisan agreement is a rare achievement. This plan, supported by moderates, was scuttled by the extremes and the cowardly.
Once the plan was rejected, then we saw the plans from the extremes. Obama's initial budget proposal for 2012 had a deficit of $1.1 trillion. The Ryan plan cut only $90 billion, had a deficit of $1 trillion, and had future cuts that overwhelmingly affected domestic spending. Ron Paul's plan called for cutting $1 trillion in his first year. He's clearly unafraid of the economic shock. Consequently, no budget was ever passed for 2012. Instead, the government has operated under continuing resolutions for the entire year. Budgets cuts were agreed during a crisis over the debt ceiling, but there is no plan in place for 2012.
If Simpson-Bowles had been accepted, voted on, and passed, we would be nearly to our second year of the plan. Instead, we have a deeply polarized Congress, a current confrontation over payroll tax cuts, and no deal in sight for the Bush tax cuts due to expire at the end of 2012. We will stumble to a more balanced budget, even without a deal, thanks only to sunset provisions. I guess we should count our blessings. The extremes are canceling each other out (at least until the next election). A lucky default outcome is better than an expensive, ill-conceived policy, but a reasonable, conservative approach like Simpson-Bowles would be far better. In the meantime, the bomb is still live, and time is getting shorter.
Blue - new taxes, Red - spending cuts. Simpson-Bowles: Most balanced
Update 2/10/12. Greece today: "Papademos said failure to secure the $171 billion rescue package that’s under negotiation threatened 11 million Greeks with a default that would halt the payment of wages and pensions and shut down schools, hospitals and businesses." -- Bloomberg. Is that what we want in our future?