The great and important choice between these two options is not going to be made in the next few weeks, of course. It won’t be settled in this particular showdown, or in this particular year. But eventually, albeit gradually, over the course of several election cycles, it is going to need to be settled. And given the fiscal constraints we now face, there isn’t all that much of a middle ground. To chase the accelerating costs of the liberal welfare state with taxes is going to take a different way of thinking about government in America; to transform the welfare state into a series of (relatively) efficient and market friendly 21st-century safety-net institutions is going to take a different way of thinking about government too. Middle-ground solutions can put off the need to decide, but they cannot make it go away. And until we take some meaningful step in one direction or another, we’re going to continue to muddle through showdowns at the edges of cliffs.
I suppose we are entering the period during which we will determine if the economy can prosper under the burden of the welfare state at its present size. We have plenty of theorists on both sides who are saying yes, it can and no, it can't. If unemployment stays high and growth low, that's a good enough answer for me, though it won't end the debate.--TS