It's time to start worrying about inflation

“At least one economist” (the same one, he of the “derisive guffaw”) and I had an exchange of views on the Web awhile back. He is of the view that the debt doesn’t matter, that the fuss over it is a right-wing plot to generate unnecessary panic about government spending and use it as an excuse to cut Medicare and Social Security. (Many Republicans think it’s a left-wing plot to raise taxes.)

I asked him a version of the question above. If the national debt doesn’t matter, why do we have taxes at all? Why not just borrow the entire federal budget? (The same question can be posed to a Republican tax-cutter.)

Derisive Guffaw answered that we need the deficit for Keynesian reasons: so that we can easily raise or lower it to stimulate or sedate the economy, as needed. Of course, in the real world, we don’t seem to be able to raise and lower (or at least to lower) the deficit for any reason, good or bad.

The question remains: If the deficit doesn’t matter, why have any taxes at all? And if there is some point at which the deficit does start to matter, and become dangerous, when is that point if $1.6 trillion isn’t it?

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