Recently, two liberal economists, Robert Reich of the Clinton Administration, and Paul Krugman, of the New York Times, have complained that the budget deficit doesn't matter. This is hardly a liberals-only position since George W. Bush's administration was reputed to have sat around the White House War Room saying the same thing. Indeed, Mr. Bush and the Congress began running deficits within months of his winning the 2000 election. Bill Clinton and the Congress claimed to have balanced the budget for the two or three years prior to that, and it is against this same budget formula that Mr. Bush began embarking on spending imbalances.
The takeaway from the new rants by Reich and Krugman is that there is no reason to have erected the fiscal cliff that President Obama and the Congress are bickering about. The government prints money, Krugman argues, therefore it cannot go bankrupt. This is actually a true statement. Even the spirit of the statement, the notion that the United States does not need some sort of emergency reaction to the deficits, is true. The fiscal cliff was political theater for the 2012 Presidential and Congressional elections. With those settled, there is no need to immediately undercut Medicare, Medicaid, Social Security, or Defense, as there is no need to choke off whatever recovery we have going with stifling new taxes.
Unfortunately, the deficit does matter for two other reasons: First, deficits have been used for most of the past 40 years to feed the growing entitlement mentality harbored by many Americans. Earning the big bucks, those reflected in the American standard of living, is hard, and the country has made it. Why not ask those fat cuts to pay for the difference between what an American earns and what he or she collects? Do you know who the fat cats are? They're those mostly mythical people who have lots of extra money they don't deserve. Because these cats are essentially fictional though, there are not a lot of real people to ask to pay more so we can earn less.
Second, the rest of the world won't keep investing in a dysfunctional system that rewards mediocrity and largess forever. Either somebody has to actually earn most of the money that is provided to Social Security recipients, Medicare and Medicaid beneficiaries, and for defense outlays or one day our political and economic systems will be recognized and disregarded as the shams they will have become. No one can predict quite when the rest of the world will make other bets if the entitlement fest continues, but let me guess about twenty-five years. By this time, Medicare will long be insolvent and Social Security will be in imminent danger of collapse.