by Glenn Hubbard, Tim Kane
January 10, 2013
All great nations fall. And as economic historian Douglass North reminds us, they almost always fall when political institutions reveal their “inherent instability.” But history also shows us that adaptation is possible. Decline can be averted, at least for a time, by leaders who are able to see their way out of the trap of imbalance—out of the prisoners’ dilemmas created by old rules that no longer suit a new set of circumstances. We are in such a trap today. Everybody knows that our current fiscal practices are unsustainable. The question is whether our leaders will figure out in time just how we can escape that trap by rebalancing the rules of how we budget, tax, and spend.