Another hazard is losing what Robert E. Rubin, Summers' predecessor as treasury secretary and my guru on this subject, calls "resilience." A deficit of 3.2 percent of GDP, which is what Bush predicts for this year, curtails the ability of policy-makers to respond effectively to the unforeseen and unforeseeable. The U.S. economy was able to absorb the shock of Sept. 11 without falling into recession in part because of Washington's use of fiscal as well as monetary policy in response. But when the budget is already deeply in the red, the "break glass in case of fire" box comes pre-smashed. In the event of another major terrorist attack or natural disaster, such Keynesian tools as tax cuts and stimulus spending will be much harder to deploy than they were in 2001, when the budget was still in surplus.Many on the right will state that 3.2% of GDP is not a dire deficit, HOWEVER those same folks are highly prone to reminding us that everything changed after 9-11. As Rubin makes clear, due to the Iraqi occupation and the always impending possibility of another terrorist attack, a significant federal deficit is not smart if the goal is to be continuously prepared and ready.
As with many issues, this administration can't continue to have it both ways. If in fact everything did change after 9-11, than in this case a no-brainer modification should be that the government can no longer afford to carry large deficits. To do so is to jeapordize responsiveness to national tragedies and therefore put the public at risk. Instead, the government must remain nimble, ready to finance any needed measures that may be required stemming from future attacks.