Allan H. Meltzer: why we have big deficits now?

Why Capitalism?

Allan H. Meltzer 

The United States government is on course in 2009, 2010, and 2011 to run the largest peacetime deficits in its history—at least $1 trillion a year for ten years or more—with no end in sight. Logic and history tell us that financing such enormous deficits will cause inflation and a depreciation of the dollar against other currencies. Every knowledgeable observer agrees that the projected deficits and debt are unsustainable. Studies at the Bank for International Settlements suggest that decades of surpluses will be required to restore the 2007 debt to GDP ratio. 

It is a big problem, but not a new one. Historically, politicians have given lip service to fiscal restraint. Today, however, efforts to achieve budget balance or surplus in the United States are a rarity—apart from routine complaints from the party currently out of office about deficits attributed to their opponent. Once in office, the winner neglects fiscal orthodoxy and adds to the deficit.

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