Here is an amusing paper, co-authored about 10 years ago by Greg Mankiw, now chairman of the Council of Economic Advisers. In The Deficit Gamble, Mankiw writes:
The conventional wisdom holds that government budget deficits crowd out capital, reduce national income, and lead to lower living standards for future generations….we propose a new view of budget deficits…a deficit is a gamble. It is an imprudent policy, because it imposes a significant burden on future generations in some realizations of history. But in most possible outcomes, the future effects of deficits are benign….We call the policy a Ponzi gamble.
My favorite part of the paper is this:
Our alternative view of government debt may also help explain why Ronald Reagan chose to preside over the profligate fiscal policy of the 1980s. Biographers of Ronald Reagan often note his boundless optimism. This optimism was in part due to his own unlikely rise from an actor in B movies to President of the United States. …Put simply, an eternal optimist like Ronald Reagan may choose to accept a gamble that a realist would deem imprudent.
I ran into Mankiw recently and said, “You must be a gambling man!” He laughed but quickly averred that I shouldn’t read policy into the paper. Clearly, he has learned something from the outsourcing debate. I wonder what future biographers will say of George W. Bush’s optimism?