I’m a little late mentioning this, but my latest column is online and in the issue of TIME with Leno on the cover. Here’s how it starts:
It was one of Dick Cheney’s more memorable lines. “Deficits don’t matter,” he told Treasury Secretary Paul O’Neill in 2002. Later, after O’Neill made the conversation public, Cheney elaborated that he meant this “in a political context,” not an economic one. But for most of Cheney’s time as Vice President, the claim held up pretty well in both contexts. Over O’Neill’s objections — he’d be gone soon anyway — the Bush Administration and Congress abandoned a bipartisan commitment to fiscal prudence that had held sway since the early 1990s and went back to running chronic deficits. The result was a growing economy and a second term for George W. Bush.
Even when crisis came, in 2008, it wasn’t a crisis of government finances, as some pessimists had feared, but one of mortgages and Wall Street. As Washington battled the troubles, the deficit grew to an estimated $1.6 trillion in the fiscal year that ends this month. That’s by far the biggest shortfall ever, in dollar terms. The government will have spent $3.7 trillion and taken in $2.1 trillion. Even by the more forgiving yardstick of percentage of gross domestic product, the shortfall is, at 11.2%, the biggest since World War II. It will be smaller next year but still huge by historical standards. At some point this starts to matter, right?
Well, yes, at some point it does have to start mattering. But one of the great mysteries of modern politics and economics is where exactly that point might be. Read more.
The “deficits don’t matter” quote is of course from Ron Suskind’s The Price of Loyalty: George W. Bush, the White House and the Education of Paul O’Neill. Cheney’s line about political context is from an interview with Fortune‘s Nina Easton in 2007. And I had a long talk with budgetologist Stan Collender that helped inform the column, but none of the quotes from the conversation made it into the piece, so I’m thanking Stan here. Thanks, Stan!