Roger Altman's op-ed in today's Wall Street Journal strikes me as slightly off in its focus on medium-term deficits:  

[F]ederal deficits may average a stunning $1 trillion annually over the next 10 years. ...

The poor budget outlook may impel the administration to follow up health-care legislation with an effort to fix Social Security. The shortfall in Social Security's trust funds -- which adds to the long-term deficit -- is much smaller than the companion problem in Medicare funding. Public anxiety over deficits may make this fix possible now even though it has been elusive for years. If this could be done, confidence in Washington's capacity to address its debt challenge would rise.

But even with a Social Security fix the medium-term deficit outlook will be poor. Sometime soon, perhaps in 2010, Main Street and financial markets will exert irresistible pressure to reduce the deficit.

The problem is the deficit's sheer size, which goes way beyond potential savings from cuts in discretionary spending or defense. It's entirely possible that Medicare and Social Security will already have been addressed, and thus taken off the table. In short we'll have to raise taxes.

I guess I have a hard time getting very exorcised about our medium-term deficit independent of the long-term deficit. If I were an investor in Treasury bonds, I'd feel okay with trillion dollar deficits over the next ten years if our long-term fiscal situation were close to balancing. Conversely, I wouldn't feel especially comforted by medium-term balance with our current long-term picture.

So it's strange to me that Altman is worrying about what happens in a world where Medicare (presumably he means Medicare and Medicaid) and Social Security "will have been addressed." After all, pretty much any way you slice it, Medicare and Medicaid are the long-term fiscal problems, as these charts from a recent CBO report illustrate (that's percentage of GDP on the vertical axis):

If by "addressed" Altman means that we've brought Medicare (and Medicaid) into some kind of long-term balance, then there really isn't going to be much of a long-term deficit, and I can't imagine that U.S. debt-holders being very upset by some intermediate-term deficits. Particularly if we've also addressed Social Security. Alternatively, if what he means by "addressed" is "dealt with it politically without fixing the underlying financing problem," then we'd obviously still be looking at massive long-term deficits. But, in that case, I'm not sure how raising taxes to close the intermediate-term deficit would get us much. The imperative would still be to actually address Medicare and Medicaid, rather than "address" Medicare and Medicaid.  

Which, to make a related point, is why the sheer size of the medium-term deficit tells you very little in itself. If the point of running a big medium-term deficit is to lower the long-term deficit--as the Obama administration says it is (at least in part)--then it's hard to see what the problem is. If the point of running a medium-term deficit is to throw a big ten-year party for rich people (i.e., the Bush approach), then that's not so good. But, even then, it's still a less big deal in the grand scheme of things than massive long-term deficits, assuming the party ends after a few years.

--Noam Scheiber