Would we waste a fiscal crisis?

Matthew Yglesias concedes there is a need to correct our fiscal balance over the longer term. While he doesn't see the political will to do anything substantial in that regard at this time, he speculates that changing conditions could also change the political calculus:

The other factor here is that while you can easily look at a budget projection and forecast a coming fiscal crisis, we’re not actually in a fiscal crisis. Interest rates are quite low and there’s just no real way to cut the deficit back further within the bounds of current politics. The actual arrival of a crisis will presumably expand the bounds of what can be put on the table.

I fear that it is simply too much to hope that our leaders will do something about this situation before such a crisis arises

While I would like to hope that such a crisis would expand the bounds of possibilities, the example of the Lehman Brothers collapse suggests that this might not be the case. Institutions that rely on short term financing of debt are vulnerable to rapid changes in lenders' willingness to lend. When that willingness runs out, then the hard choices have to be made.

Now the U.S. is no Lehman Brothers, but I'm not sure that a true fiscal crisis would really open up the available options. Yglesias is referring to the possibility of raising taxes or cutting spending in meaningful ways on programs that, absent a crisis, are absolutely off limits (Social Security, Medicare, and defense).

Another possibility is that, like the failed financial institutions of this crisis, the government would simply turn to the Federal Reserve to inflate away our debt. This would be incredibly short-sighted, and ultimately worse, since we would need to continue to borrow at the higher interest rates resulting from inflation. That said, it doesn't mean our policymakers won't try it once they are confronted with an actual fiscal crisis.