Board of Contributors: At Sea With Surpluses
For at least 30 years the U.S. has had, or at least professed, one fiscal policy: Reduce the deficit, ideally to zero, preferably within five years.</br></br>I was never crazy about this policy. I never attached significance to the number "zero." The only thing one could say about zero was that it was $100 billion less than $100 billion and $100 billion more than negative $100 billion. This becomes obvious if you think of all the different plausible ways there are to define and measure budget surpluses and deficits.</br></br>In the early Reagan years, when the deficit was large, I was not among those most eager to reduce it. Although I believed that the deficit was retarding growth by absorbing private saving that would have been productively invested, I thought that we were a very rich country and had more important things to do than speed up growth. I was a strong supporter of the defense buildup and feared that the deficit argument would be used to restrain it.</br></br>Grand Goal in Sight</br></br>I changed my mind recently as the deficit declined; this year, the grand goal of zero seems finally achieved. In fact, I came to believe that balancing the budget was not enough and that we needed to get to a surplus. What changed my mind was the ever-clearer prospect that we would run huge deficits in the 21st century as baby boomers claimed their retirement and Medicare benefits. Although I was not one who wanted to maximize future growth, I would not like to see the growth of per capita income turn negative, and I was afraid that would happen if the federal deficit was so large as to absorb all private saving.