08/01/2011 10:00 pm ET Updated Oct 01, 2011

Why the Deficit Deal May Pass -- But Can't Stand

So we won't default -- unless the extremist Tea Party gets its way. But we don't have a long-range fiscal plan, either, whatever the press releases say. Since the plan on the table is horrendous, that's a good thing. Indeed, the idea of detailed ten-year fiscal plan was, at its heart, absurd. (Ten years ago, the U.S. government was beginning to agonize about a burgeoning budget surplus.)

Here's why the fiscal pathway laid out in the "Deficit Compromise" is not going to happen, regardless of what Congress does this week:

1. The current agreement cuts only Defense and government services/ infrastructure investments. But those two components each account for only 20 percent of the total federal budget -- $700 billion each. Sixty percent of the federal budget -- interest payments, medical care, retirement costs, food stamps and income support, and corporate tax subsidies -- are not touched. The deficit is $1.3 trillion -- you would have to eliminate both the entire military and all of the public services provided by federal government to balance the budget by cutting those two functions. Not even Grover Norquist would go that far.

2. The agreement contains a series of foolish, unpopular, and profoundly unserious trade-offs. A serious country wouldn't retain tax subsidies for the governments of Saudi Arabia and Venezuela, while cutting medical research. A serious country with the least-competitive infrastructure in the advanced world would not accelerate its disinvestment in its bridges, highways, mass transit systems, and electrical grid, while giving hedge fund managers uniquely privileged tax treatment.  A serious country whose greatest fiscal challenge is cutting the cost of health care would not slash activities like cleaning up pollution, developing new health care technologies, and improving nutritional education that are the cheapest way to cut health care burdens. A serious country whose children fall farther behind global standards for science and math every year would not devastate educational funding while continuing to give tax breaks to corporations that move jobs overseas to find a better-educated workforce. A serious country whose economy is being destroyed by a $300 billion a year imported oil bill would not eliminate funding for the very programs that might enable it to kick its long-standing oil addiction, while refusing to touch subsidies to the world's most profitable (and often foreign) oil companies. It would also rethink its repudiation of a deficit-reducing tax on carbon.

3. Environmentally, the proposed cuts in domestic spending would be incredibly damaging and would effectively preclude the government from giving Americans the environmental safety net they want. There wouldn't be enough money to invest in clean energy research. We wouldn't be able to restore our dilapidated, leaking, unhealthy system of sewers and sewage treatment. Research into the toxic chemicals that are sickening and killing hundreds of thousands of Americans would be hampered. Fundamental environmental law enforcement would slow. Parks would continue to decay. Ecosystems on which our communities depend would unravel. Mass transit would rust. The clean energy future would be strangled in its crib -- it's really not Hercules. Coal and oil would rule our future.

4. Fortunately, the short-term deficit came from factors we can reverse: the Bush tax cuts, two wars, the Bush prescription drug plan, and (hopefully) the Great Recession. It's obvious how to fix the first two -- restore taxes to their 2000 levels and bring the troops home.

5. To deal with the fiscal impact of the recession, we need to restore economic growth. But we need greater domestic demand to get the economy going -- and the default package actually cuts demand, putting us deeper in the hole. A serious country would do that only if it thought of itself as part of the "Anglo-American world." Britain is being as foolish -- and it's not working there either. But in my next post I'll offer a fix for this.

6. The Bush prescription drug plan is only one part of the one long-term fiscal challenge we face -- bringing down the cost of health care. That is urgent and will take time, but if we solve the rest of the fiscal imbalance, we have time.

The good news is that very few of those who voted for this "compromise" have any illusion that it is a true fiscal blue-print. It avoided a default, which was incredibly important, and it made the next election a campaign about the role of government. Democrats are demoralized, as they should be, by their lack of an effective negotiating strategy. And Republicans (the sensible ones, at least) are terrified because they don't have a solution and their settling on this fig leaf shows it.

This profoundly unserious plan has set up a profoundly serious national debate -- are we going to be Europe or yesterday's Latin America? It's revealing that the reactionary Tea Party Right consistently frames the choice facing America as whether we are going to become like Europe -- when the reality is we more and more resemble a dysfunctional 1970s Latin American oligarchy.

I'll close this post by pointing out an irony. Francis Fukuyama, widely viewed as a hero to the conservative movement, has just published a new book, The Origins of Political Order. In it he frames what he thinks is the fundamental question facing the 21st century. Surprise, it's not "How do we get government off our back or drown it in a bathtub?" No, for Fukuyama, it is axiomatic that what people want today is to become -- DENMARK. The big question is how to create government institutions that can do what the Danish state has accomplished.

I think he's right. What people in Somalia and Afghanistan want is to become more like Denmark. But for the United States, I think there is a different question -- how do we remain America?

Denmark is probably not an option. We are not yet Paraguay. But we are headed somewhere in that direction.

Fortunately, because we have been so foolish and wasteful, we have some simple solutions. That's the great advantage of stupidity. It is optional.

So my next post will discuss what to do and why, in fact, there is a free lunch!