As I've been writing about the deficits, one of the things that occurs to me is that conservative and liberal policy analysts are really talking past each other on this issue, because they're talking about different sorts of deficits. Liberals are focusing on the cyclical deficit, which is not a big problem. Conservatives are talking about the structural deficit, which is a huge problem. And so one side says, "the deficit is a problem," and the other side says, "the deficit is manageable," and both sides are both right and wrong.

Cyclical deficits are the kind of deficit you run when you lose your job: you've had a temporary income shock, and so you're going to be spending more than you take in. In the case of government this is actually a good thing -- "automatic fiscal stabilizers" like welfare, unemployment insurance, and food stamps keep recessions from being as bad as they used to get. (I know you think this recession is bad, but trust me, in neither absolute misery, nor the size of the relative decline, does it even approach the convulsions of the Great Depression, or several of the 19th century "panics".)

Even if you think the government shouldn't be doing stimulus spending, cyclical deficits just aren't that much of a problem. We have a recession on the order of this one about once every thirty years, which turns even a $1.3 trillion dollar deficit into a manageable $43 billion per year, or less than $200 per person. Given the misery that would obtain if we slashed outlays to meet intake, or raised taxes, that's not a terribly bad sum for what you might think of as Great Depression insurance. Plus the debt's going to be eaten away by inflation, so it will cost even less than that in real terms.

The problem is our structural deficit: the mismatch between our spending and tax revenues that remains even when the economy is just plugging along. That mismatch was manageable in the pre-Obama era; as long as your debt is growing at roughly the rate of your GDP, or less, even persistent structural deficits can be tolerated. (I don't think they should be--but they will not drive either your economy, or your government, into serious trouble.) But as the structural deficit begins to exceed the rate at which the economy is growing, you rapidly start to run into trouble. Interest payments start to grow as a proportion of your budget, and as they get bigger, the size of the tax increase or spending cuts needed to close the budget deficit starts to grow. Naturally, the bigger the tax hike or spending cut required, the less likely it is to happen.

Now, the future structural deficit cannot simply be blamed on Obama. The biggest problems are the fault of FDR and LBJ. Up until now, Social Security and Medicare have been net contributors to the "General Fund", aka The Rest of the Budget. Starting this decade, the programs go into deficit, meaning they start taking money out of the general fund, instead of putting money in. That leaves a big hole which has to be filled.

This is a big problem. If I had to guess, I'd venture that the reason that bond traders are not yet more bearish on Treasury debt is, first, that most of our borrowing is short term, and second that they're giving Congress and the president the benefit of the doubt -- waiting to see whether they come across with some combination of tax increases and spending cuts to get the deficit down to manageable levels. This is a possibility, one I hope we embrace.

But it isn't true that the structural deficit is not a problem if we just leave it alone. Paul Krugman and others have been posting graphs like this one: 

I don't find the comparison to Belgium, Japan and Italy exactly comforting, particularly not when I contemplate this graph of per-capita GDP:

Moreover, it's not as if we get to 2019 and just stop growing our national debt.  In 2020, absent some radical action, we'll still have a structural deficit of roughly 6% of GDP if current projections are to be believed.  That means that the debt will be growing at an alarming rate every year, with no end in sight.

Now, I don't want to exaggerate the dangers. As we saw during the Bush administration, these projections are inherently unreliable.  But that's only middling comforting, because of course, they can be too optimistic as well as too pessimistic, and also, so much of the structural deficit is driven by demographic change, which is one of the more predictable forces in modern life.

The above graph argument¹ is not a reason to stop spending money now -- it doesn't really tell us whether or not we need a second stimulus.  But it is a very good argument for being careful about what future obligations we take on, as well as for thinking seriously about how we're going to start bringing those deficits down when unemployment starts dropping and robust growth resumes.

¹I am apparently developing early-onset alzheimer's. I plead my continuing adventures in the exciting world of root canals.