This article originally apearded in US News and World Report's 'Debate Club' in response to the question: "Should balancing the federal budget be a top policy priority?"
The federal budget deficit should be sustainable given future growth and inflation expectations, not necessarily zero, much like there is no need for corporations to be financed with equity alone. At nominal interest rates of 0.5 percent, deficits of the size we are facing at this moment are quite sustainable. Cutting spending or, even worse, raising taxes again, in a slowly recovering economy and an environment of high and often long-term unemployment is counterproductive. The latter, especially, would stifle the recovery and hinder job creation.
That said, there are serious long-term fiscal problems that deserve our attention now. Cutting entitlement programs after they have spun out of control is much harder and more painful than reforming them ahead of time. In other words, basing your fiscal policies on the belief that the world will cease to exist in the 2023 is imprudent. Oddly enough, many liberal pundits and politicians appear to be doing exactly that. Instead of adopting a willfully blind attitude of après moi, le déluge, policymakers should adopt meaningful entitlement reform that will keep deficits sustainable in the long run as a top priority. But if it is politically impossible to enact such reform now without bribing certain factions into agreement by raising taxes in a weak economy, as appears to be the case, then it appears wiser to hold off on such reform until the political tides have changed.
Stan Veuger is a research fellow at the American Enterprise Institute.