Is the Deficit Really So Bad?

Balanced budgets, it has been said, are the economic equivalent of chicken soup: whatever ails you, reduce the deficit. In the 1930s Herbert Hoover blamed the budget deficit for prolonging the Depression; in the 1970s people blamed it for inflation. Earlier in this decade people said that the budget deficit would drive up interest rates and abort the economic recovery, and that it would overstimulate the economy and re-ignite inflation; they have accused it of pushing up the dollar, and more recently of making the dollar weak. They have said that it would certainly bring upon us a day of reckoning of one kind or another-- a recession, a world financial crash, a big inflation, a crunching of the standard of living. Everybody waited. Nothing happened. The stock market crashed, but the economy glided on with eerie aplomb. The expansion, one of the longest of the postwar era, continued. Inflation stayed under control.

Gradually the wisdom of Schultze's words is coming home. Many professional economists have long agreed with Schultze about the deficit, albeit in a quiet, don't-remind-us kind of way. The full import of what they were saying is at last seeping into the consciousness of the public and of the Washington political establishment. Something terrible may yet happen, but with each year in which it does not, the case for regarding the budget deficit as an economic crisis weakens.

Telling people that they had better balance the budget, or else, is fine-- for a time. But it is like telling your son that he'd better stop smoking, or cigarettes will kill him: after a while, when "or else" hasn't happened, the deterrent effect of the warning wears off, and there is little to replace it. The credibility of the deficits-are-disastrous school is shot, which leaves everybody wondering what it is, after all, that we are so worked up about.

The President and Congress will soon be working on a package of deficit reductions, just as they have been doing for most of the past six years-- with some success: what were rapidly rising $200 billion deficits four years ago are stable or slightly declining $150 billion deficits today. In Washington the anxiety level has decreased in the past year or two, partly because the worst deficits are behind us but also partly because, after seven years in which the country broke every fiscal rule in the book and nothing terrible happened, it is harder to see why we had the rules in the first place. Conservatives and liberals have formed an unlikely alliance whose binding principle is that cutting the budget deficit is not, after all, the most important thing in life (they could, however, hardly be further apart on what is the most important thing in life). People in the middle, who have a gut feeling that what the country has been doing is wrong, are left to gnaw on a question: Is the deficit really so bad?

Maybe it is time to admit that running a big budget deficit is a survivable condition. Deficits do matter, a lot. But to see why they matter, one must use economics to look past economics, to the social compact.

A RECESSION SPREAD OVER THE REST OF TIME

In the early 1970s, for reasons that remain obscure, the rate of productivity growth dropped off sharply in the United States and the other major industrial countries. Suddenly a given amount of national work effort was producing a smaller gain in living standards. A country can deal with something like that in a number of ways. It can increase its work effort if, for instance, millions of women go to work, as happened in the United States. Another thing it can do is borrow.

There is nothing wrong with borrowing, as such. It is how you use the money you borrow that counts. If you borrow and invest wisely, your investment will generate a stream of future income; you can use that stream of income to repay your debt, and you will probably still have a good bit of money left over. It is something else again if you just spend the borrowed money to maintain your standard of living. Then you are merely deferring pain; you are better off at first, but worse off in the future, once you start having to pay back what you owe In the 1980s the United States government deferred a lot of pain.

A budget deficit, to begin with the obvious, is the difference between the amount taken in in a year and the amount spent. If the government spends $1 trillion but takes in only $850 billion, as it did, approximately, in fiscal 1987, it has to borrow the difference. The place it goes to borrow (if we ignore for the moment the possibility of receiving help from abroad) is the national pool of savings available for investment. Later on, to pay the interest on the additional debt it has assumed (interest claims almost twice as much of the federal budget as it did ten years ago), the government must raise taxes or, if it wishes to escape part of its obligation by repaying the debt in debased currency, crank up inflation. Either step makes future Americans less well off than they would otherwise have been, unless the government invested what it borrowed in ways that made the country more productive. It didn't. The deficits of the early 1980s enabled the country, without an offsetting tax increase, to build up its defenses and to continue to pay for programs that distribute benefits to the middle class. In short, deficits financed consumption.

Economists initially feared that the enormous budget deficits might well squeeze out national investment while also setting off another round of inflation, by overstimulating the economy with spending. To hold inflation down, Paul Volcker's Federal Reserve kept money tight. Partly for that reason, interest rates, after adjusting for inflation, have been higher in this decade than at any time since at least the 1920s. This has helped make the country an attractive place for foreign investment. So, as things turned out, the government's borrowing did not reduce investment in this country much, because se foreign money rushed in to fill the gap. But since the investment belongs to foreigners, who capture most or much of the returns, the future living standard of Americans is lower than it would have been if we had saved and invested more ourselves.

The numbers here are revealing. In the 1960s and 1970s net private American saving averaged 8.1 percent of the gross national product. Saving by state and local governments kicked in an additional 0.4 percent of GNP, but the federal government, by running deficits, contributed negative saving of 1.0 percent of GNP. Add that up (8.1 plus 0.4 minus 1.0) and you get 7.5 as the percentage of GNP available for domestic investment. In fact we invested only 7.0 percent of GNP here. The other half a percent we invested abroad: we were net creditors.

That was pretty much the situation in this country over the whole postwar period, until the 1980s. Then our behavior changed markedly. Take 1987, when the budget deficit was actually somewhat below its 1980s average. State and local surpluses had risen to 1.2 percent of GNP, but that was the only positive development for saving. The private sector saved a lot less, and so, by running higher deficits, did the federal sector. Private saving in 1987 was 4.1 percent of GNP, or about half the level of the 1960s and 1970s, and the federal budget deficit was 3.5 percent of GNP, or more than three times the previous average. When you total this up (4. 1 plus 1.2 minus 3.5), you get only 1.8 as the percentage of GNP available for investment here-- less than a quarter of the amount that was available in the sixties and seventies. Still, investment in the United States amounted to 5.1 percent of GNP, courtesy of the Japanese and the Europeans: we borrowed a sum equal to 3..3 percent of our GNP from them.

It would have been one thing if Americans had offset, or mostly offset, the rise in the federal budget deficit by saving more privately: we would just have been moving our savings from one pocket to another. But private saving and federal saving both fell. That, in a nutshell, is the story of the 1980s. Now, at some point every person decides how much of the fruits of his labor he wants to enjoy today and how much he wants to set aside to add to his (or his children's) wealth tomorrow. The same goes for countries. If you ask where the right place is to draw the line between current and future consumption, the answer is that there is no right place. You have to choose.

This is where the world-is-ending analysis begins: we have consumed more and saved less today, we will be less well off tomorrow than we would have been, and therefore we will be poor tomorrow and we are ruining ourselves. The statistics on the point, however, are unlikely to incite panic. Exact figures, or anything like them, are impossible to obtain. But you can get a pretty good idea of the magnitudes involved.

From the time the big deficits started, in 1982, through 1987, the government borrowed about $1.1 trillion-- a lot of money. If the deficits had been proportional to the average of those of 1960-1981, a little more than 1.5 percent of GNP, the government's borrowing from 1982 to 1987 would have been about $350 billion or about $750 billion less than it was. Most of that $750 billion, instead of being sopped up by government consumption, would have been added to Americans' stock of invested wealth, and would be augmenting future income. We lost some of the returns on the $750 billion in the form of interest payments to foreigners who invested here (the interest rate during the 1980s was roughly 10 percent), and some of them in the form of investment that the United States simply did without. The returns here, too, economists say, would have been something like 10 percent a year. So we are talking about a reduction in future American income on the order of $75 billion a year, forever.

A good way to think about what all these numbers mean is this: to have consumed an extra $750 billion in wealth, which might have yielded annual returns of $75 billion or so a year forever, is roughly comparable to throwing a party today in exchange for accepting a serious recession spread out over the rest of time. In an interview late last year Schultze said, "It's like adding one more recession to forever." If we were to go on the same way for another $750 billion, we would add another recession to forever. And so on. We could probably do that several times before we noticed much of a difference in any particular year.

If the figures are not so scary as the rhetoric, maybe that should not be surprising. Changes in economic policy that are enormous in relation to the federal budget-- tripling the budget deficit, say-- are small in relation to a $5 trillion economy. Schultze said, "There are two broad ways the government can affect the economy. On the demand side, it can screw up economic stability, so we have recessions, a war, or inflation, leading to a future recession. You make a mistake and you really can see it. You can get big numbers. However, on the supply side"--that is, in matters like saving and investment, which affect the economy's capacity to produce goods and services over the long run-- "the short-to medium-term identifiable good or harm the government can do with any one thing it does is always small. You can never get those numbers to come out big in any one year." And so it is with the budget deficit: "If I do the arithmetic, it's never going to be a number that's going to shock you"--at least, not unless cumulated over many years. Schultze was not, however, saying that the deficit is unimportant. "Tenths of a percent add up," he warned.

In the early 1980s the deficits were growing so quickly that they threatened to swamp the government with upward-spiraling interest payments. That threat is past. The current deficits are large, but they are on an arithmetically stable track. The upshot is that we could probably go on running large government budget deficits for a very long time, but at a price: higher risks of two kinds. First, a big deficit, like anything else that makes investors nervous, probably subtracts from the margin of economic stability. In the immediate wake of the election Wall Street was particularly worried that foreigners could lose confidence in our economy and cut off our line of credit, exposing the United States to possible big interest-rate shocks and to a collapse of the dollar. Still, a higher-risk policy does not necessarily mean that we are on a course to disaster. We can fairly say that it would be a good idea to avoid running a budget deficit, other things being equal, in order to reduce the likelihood of crisis. What we cannot say-- but what many people, particularly on Wall Street, say nonetheless-- is that there is a more than slight chance that U.S. budget deficits will lead to frightening short-term consequences.

The more fundamental risk is the one inherent in borrowing to consume. Regardless of the deficit, new technology and rising productivity will almost certainly make our children somewhat richer than we are-- the question is how much richer. If the country's wealth grows a lot, the effects of today's deficits will hardly be noticeable, but if growth is slow, future generations may curse us for taking from them what they will have turned out to need. That is the risk we take. Herbert Stein, another past chairman of the council of Economic Advisers and today one of Washington's most experienced and wisest economic thinkers, said not long ago, "My preference would be not to have an increase in American consumption, or not so much of an increase in American consumption. I'd rather see more investment, because I feel some obligation to my grandchildren. But it seems to me that that's about all there is to it. It's that kind of choice It is not a matter of ruin or collapse. It's the same kind of choice that an individual makes when he decides how much to save."

In the economics profession the conventional view right now is similar to Schultze's: that the country's most urgent economic need is to get the deficit down, and maybe even run federal surpluses, in order to get saving up. "The one thing we know we can do to gin up productivity growth--- not by very much, but, by God, we know w e can do it--- is to save and invest more," Schultze said. "Precisely because government can't do much, we ought to damn well do what we know how to do." A growing number of people, however, are challenging the Schultze view.

THE CASE FOR THE DEFICIT

Hardly anyone actually likes deficit spending in prosperous times. But, as Herbert Stein has said, nobody likes open-heart surgery either. The question is, What's the alternative? On the Republican right many people have come to see deficits as less risky than any of the other available choices. On the Democratic left opinion has taken a similar drift in the past year or two. Conservatives would rather have deficits than bigger government; liberals would rather have deficits than smaller government. In the middle are those, like Schultze, who say that the first priority should be reducing the deficit and never mind about the size of government-- but that middle has been shrinking as the deficits themselves have stabilized and set up regular housekeeping.

It used to be Republicans who shrieked about deficits and Democrats who said they were not such a big deal. Republicans have accused Democrats of turning around in their tracks on the issue and caring about budget deficits only after a Republican President starts running them. There is something to that, although Reagan's deficits were unlike anything the country had ever seen before outside depression or war. If anything, the reversal of conservative Republicans was more striking. In 1981 Jack Kemp, who was then a congressman, announced, "The Republican Party no longer worships at the altar of a balanced budget." Conservatives were once people who instinctively felt that the budget should be balanced, even if that meant raising taxes. Now they are people who tend to believe that taxes should be held down, even if that means living with deficits.

A good way to get inside their point of view is to visit Stuart M. Butler's office on Capitol Hill. Butler, a quick and forthright thinker, is in charge of domestic-policy studies at the conservative Heritage Foundation. Prominently displayed on his office wall is a framed picture of the economist Milton Friedman, beneath which is this quotation, from a talk Friedman gave in 1983: "You cannot reduce the deficit by raising taxes. Increasing taxes only results in more spending, leaving the deficit at the highest level conceivably accepted by the public." Over the past decade or so that idea has become gospel to many conservatives, Butler among them.

"Like all public policy," Butler said in a recent interview, "it's a choice between alternatives. It's not that I love deficits. But I like to know what are the alternatives we're talking about. And the alternatives that have been proffered by Schultze and others I do not find attractive. I find them arguably leading to even less desirable economic consequences in the future. They open up, I feel, a political dynamic that might even be self-defeating"-- that is, tax increases would be used to increase spending and not to reduce the budget deficit.

Butler and other conservatives argue that deficits are the symptom, not the disease. The disease is runaway federal spending. "There had been a rapid increase, prior to Reagan, of both spending and taxing. What Reagan has essentially done has been to top out or slow down the rising taxes. You had two runaway elements of public finance, spending and taxes. We've got control of one of them, taxes, and the deficit is the symptom of the fact that we haven't got control of the other. So the solution is to get rid of that other runaway item, which is the spending side. "

Suppose you offer Butler a deal: Reduce the budget deficit-- say, by $100 billion-- with a package that includes a substantial tax increase. He won't take it, even if you stipulate that all of the tax increase goes toward lowering the deficit and none goes toward increasing spending. "I think the negative impact on future generations of raising taxes would be higher than the impact of borrowing," he said. In other words, it may well be better for the economy, given the current burden of taxation, to continue borrowing than to raise taxes. The idea is that we are merely talking about subtle differences of economic effect when we choose between taxing and borrowing to finance the government, and it is not clear which is actually worse for the economy. Finally-- and this is the argument that really infuriates liberals-- conservatives believe they get something in return for the budget deficit: "I see the deficit as a wedge to put the pressure on public spending," Butler says. "If you're looking at the deficit and the size of the government sector, the second measure"--the size of government--"is far more important in its overall economic impact, and I think everyone who is in the conservative camp who is less bothered about deficits would pretty much agree with that line of argument." So if in return for higher deficits we get a smaller government, it is a good trade.

Economics can't be used to prove Butler wrong, but there are certainly ample grounds for skepticism. Few economists would dispute that, everything else being equal, raising taxes is not generally good for the economy. The evidence is scant, however, for the proposition that raising taxes is worse than borrowing. We just don't know-- and in such circumstances the usual presumption is that one ought to pay one's bills.

As for where a tax increase would go, some of it probably would be used to increase spending--but hardly all of it (the tax increases of 1982 and 1983, the latter a large one to keep the Social Security program solvent, played a major role in stabilizing the monster deficits of the early 198Os). Most people part ways with the conservatives in being willing to accept somewhat higher spending in exchange for lower deficits. Also, it is not at all clear that running deficits has held down government spending much. After all, the Reagan years set two postwar records simultaneously: for highest peacetime deficits (an average of 4.7 percent of GNP from 1982 through 1988, higher than in any preceding postwar year), and for highest spending (an average of 23.4 percent of GNP over the same period-- again, higher than in any preceding postwar year). A lot of economists, many of them conservative, have long believed that raising taxes, not cutting them, is the best way to constrain spending in the long run, because it forces politicians to impose pain if they want to give out goodies.

Alas, the economic evidence is not strong enough to settle the argument. We do not know how big the government would have been without the large Reagan deficits, and we do not know how a tax increase or a like amount of borrowing would cascade through the economy to affect generations still unborn. And all of that is finally beside the point. If what you most want is smaller government or lower taxes, then budget deficits are a secondary concern. Something analogous may be said for the emerging thinking on the left, which turns the conservative argument on its head and says: A more aggressive government presence in the economy is vital to economic success, and if strengthening that presence means running a budget deficit, then so be it.

Some economists on the left, including Robert L. Heilbroner, of the New School for Social Research, in New York, hold that large Budget deficits are actually a good thing, as long as they stay under control. "When the economy needs stimulus, a deficit can be very useful," Heilbroner said recently. "Right now, I'm not terribly impressed by the overall rate of growth of the economy." These days, however, that position is rare. What is not so rare among liberals is the idea that there are three things we need to do for the national economy: avoid a recession; make additional investments in education, research, infrastructure (roads, bridges, and other public goods that have been allowed to deteriorate), and so on; and reduce the budget deficit. The budget deficit is third on their list.

Jeff Faux, the president of the Economic Policy Institute, a new liberal Washington think tank, has become a leading proponent of this emerging liberal view. "I think deficits do matter," he said not long ago. "But I think that other things matter as well. The problem with the debate is that it has become dangerously oversimplified, as if all our problems could be resolved by simply erasing the fiscal deficit. I think that's wrong economically, and I think it risks what could be a very, very disastrous outcome-- that is, a recession. It's not possible to have a recession next time. That is, if we have a downturn, it's going to turn into something worse"-- because of the large amounts of debt hanging over the world financial system. "We're talking about a long economic bath for America, the likes of which we haven't seen since the 1930s."

Not everyone on the left goes along with Faux there, but liberals have traditionally worried more about unemployment than about inflation, and so they are generally averse to doing anything that they think might bring on a recession-- which, as Faux points out, would just increase the deficit anyway, as tax receipts fell off and welfare spending rose. Faux and many liberals think that rapid deficit reductions could easily trigger a downturn. "Given the dangers of recession and what it can do," Faux said, "if you're going to take a risk, take it on the side of keeping the economy going."

Next on the priority list comes investment. Faux said, "We've got this sort of Catch-22. It's almost become a cliché that we've got to invest more, and we have to do that in order to make our economy competitive. But we can't do that because we've got this budget deficit, which in part is a result of our not being competitive. So we keep putting off what I think are these essential investments. At some point we have to realize that the neglect of certain public investments has gone on for so long that it's absolutely essential that we make those investments. When your tires run out, you need new tires." In effect, we can say that today's budget deficit makes our children worse off than they might have been-- but how much worse for them still if we let the nation's stock of human and public physical capital fall into disrepair, or if the government fails to help us compete successfully with the Japanese. Suppose, then, that you offer Faux a deal: $100 billion, say, in new government spending on education, fighting poverty, building infrastructure and the rest, all of which must be financed by borrowing and thus adding to the deficit. He would take it.

Like the conservative argument, the liberal argument is credible but far from incontestable, and there are lots of grounds on which to question Faux's viewpoint. First, the big concern for most economists over the past year has been not that a recession would start any minute but just the contrary-- that inflation might be about to take off. If that is the case, then reducing the budget deficit would be just what the doctor ordered. Anyway, liberals, like conservatives, tend to overstate the government's effect on the economy: the deficit fell by $70 billion from 1986 to l987, and nothing much happened at all. There is good reason to suppose that no deficit reduction that Congress might muster the will to pass would trigger a recession, especially since the Fed could offset some of the deficit reductions with lower interest rates.

Second, and more fundamentally, the Achilles' heel of the liberal argument is inflation. In the past, efforts to keep the economy going at whatever cost have usually led to inflation, which then led to a recession when the Fed clamped down. To a large degree, that is what happened under Presidents Johnson, Nixon, and Carter. So, arguably, the liberals' plan does not prevent a recession, and might in fact bring one about. Liberals argue that a rapid inflation is now unlikely; many analysts on Wall Street say just the opposite; the truth is that nobody knows. Finally, practically no one disputes that borrowing is fine if it is used to make: good investments. But the key word there is good. A lot of people-- especially conservatives-- look dubiously on the idea that the government will make good investments, given the pressures of politics, and they are very skeptical indeed that the government's investments will generally be better than the ones the private sector would have made had it held on to the money that the government, with its budget deficits, borrowed.

Neither faction can prove its own economic assumptions or disprove those of the other side. Economics has produced no generally accepted answer to the question, What is the best mixture of taxation and borrowing by which to finance a given level of government spending? In the absence of an answer, people are using economic rhetoric to conduct a debate that economics cannot settle-- a political and ideological debate over what it is that government should and should not be doing, and what risks are worth taking to achieve that goal. It was always so. The anti-deficit people who kept crying wolf, and who are still crying wolf, have done themselves and the polity no favor. They have tried to turn the fiscal-policy debate into a one-sided argument, to the effect that anybody who cared about the country's economic health had only one rational choice: cut the budget deficit. In the end they have undermined their own position by claiming too much, and have left the country confused and adrift on the question of why we make such a fuss about deficit spending.

We do make a fuss, and we have for decades-- centuries, really. The balanced-budget dogma goes back to nearly the beginning of the republic. Only relatively recently, since Franklin Roosevelt's administration, have people taken to seeing the desirability or undesirability of deficits as mainly an economic question. For a long time Americans had what is probably a better kind of debate over deficit spending: a political and moral debate. For it is on political and moral grounds that we balance budgets.

THE SIGN OF A COVENANT

The imperative to balance the budget is, at bottom, a rule, like any other. People can and do argue all day about what rule is best on economic grounds-- balance the budget, balance it over the course of a business cycle, hold the ratio of the national debt to GNP constant. But whatever we decide, what we are finally talking about is a rule of social behavior, like the rules about property--a rule defining the nature of what it is people are doing together and how they agree to treat each other, today and over time. The enforcement of a rule does not tell you that everybody is playing the right game, so to speak, but it does tell you that everybody is playing the same game. In that sense, a balanced budget represents to most people a social sign that, as the political scientist Aaron Wildavsky once put it, things are all right. For Americans, a balanced budget is like the rainbow of Genesis-- the sign of a covenant. "The bow shall be seen in the clouds and I will remember my covenant."

The covenant reaches through two dimensions: up and down the political spectrum in the present, and across the generations through time. In the present the shared goal of balancing the budget--- the government taxes no more than it spends, and it spends no more than it taxes-- represents a compact between conservatives and liberals. A balanced budget is a sign for liberals that conservatives are paying their share of taxes, and a sign for conservatives that liberals are restraining their spending. Given that there is general disagreement about what it is that government should he doing, a balanced budget is a sign that we have all reached a compromise: I may not support all the programs you like, and you may not support all the ones I like, but we have agreed to restraint, and within that restraint, we are supporting each other.

Republicans were appalled when Democrats, saying that we should balance the economy rather than the budget, waved aside the zero-deficit rule earlier in this century. Democrats, in turn, were horrified when the Reagan-era policies raised the rule-breaking to a new order of magnitude. To the extent that conservatives decided that they would rather have lower taxes and spending than balanced budgets, they were saying that they would he better served by abandoning the game than by compromising with the liberals, and they walked off the playing field. Now many liberals, too, seem to be wandering off the field, unwilling to make big domestic-spending cuts to get the deficit down.

The result is just what we might expect: deep and rending social division over government's role, with an annual war between the Butlers and Fauxes of the world tending to replace annual compromise. This has serious consequences, not least of them friction, demoralization, and often paralysis within the institutions of government. Large budget deficits have become an acute public embarrassment, a sign of the country's inability to cope and of people's unwillingness to make some sort of deal. Inability to solve the problem has become the problem. Beyond that, the budgetary trench warfare that has preoccupied Washington in the 1980s has frozen the liberals' social agenda and is in the process of tearing up the conservatives' defense program. Paralysis will not, in the long haul, do anybody much good.

Perhaps the second dimension of the covenant is more profound still. Because economics cannot tell us what is the right amount for each generation to save, we rely on a fiscal rule: As the previous generation did unto us, so we will do unto the next generation, barring a war or other demand of extraordinary urgency. If every year the budget is more or less balanced, each year's group of voters has to pay its own way, and the burden of financing government remains neutrally distributed among generations. A good case can be made that neutrality is not the best policy-- but there is nothing like a consensus on what is a better policy. And to break the long-standing covenant with future generations is a social decision of the gravest import; no wonder it makes Americans uneasy. Whenever one set of voters breaks the rule by running larger-than-normal deficits, it grabs a windfall from the future. The future may never notice the difference-- we don't know. But even so, is this the right thing to do? Economics cannot tell us that.

"It's a matter of preference," Herbert Stein told me. "Most people save for their children even though their children are expected to he richer than they are. But I have no problem with someone who says, 'I don't care about that-- let my children work their own way,' if that's a deliberate choice. I don't think that was a deliberate choice by the American people. I don't think they realized what was going on."

Now, zero deficit is not the only possible rule. Any rule will do, as long as everyone agrees to it and it is applied more or less uniformly over time. Zero deficit has the advantage of being easy to explain and of being the rule, or at least the goal, that people have lived by in this country for two centuries; it is the rule whose rightness people feel. But we can switch if we like. Maybe we have switched. "The rule that the budget should be balanced obviously is not operative," Stein said. "And so I think the direction in which we have to go now is the direction of rational choice."

We have learned in this decade that we throw away the balanced-budget rule at great peril to our machinery of governance and our national conscience, but we have also learned that the economy is unlikely to stop us. After seven years of big deficits, a day of reckoning has come, all right, but it is not the kind of day of reckoning that we have been led to expect. It is not a financial or economic disaster: it is our confrontation with the fact that, like atheists who must learn to set standards in a universe without divine judgment, we are on our own with these deficits. We must choose to balance the budget, or not, without the certainty of economic determinacy and without the prod of calamity.