EconoPundit has an utterly fascinating look at what the economy would be like if the budget were balanced. Basically in order to prevent a deficit tax rates would have to increase from the pre-Bush baseline (assuming the deficit was held in check through taxation) or unemployment would skyrocket (assuming spending cuts). Neither situation is truly acceptable in the long term.
However, some may see this as an a priori justification for fiscal proligacy and a rejection of fiscal conservatism. However, looking realistically at the situation, even with the explosion of federal spending, the tax cuts did significantly boost the economy and reduce unemployment – plus, they are helping keep the size of government down. As Milton Friedman quipped in 1978 "I would rather have total federal spending at $200 billion with a deficit of $100 billion than a balanced budget at $500 billion." Without the tax cuts, the rate of governmental growth would indeed be higher, and under a Democratic administration the future deficit would be at a level where it be like an anchor on future economic growth.
Indeed, with the Democrats suddenly playing the role of budget hawks (although their positions would be to raise both taxes and spending – a disastrous policy), Bush still maintains the advantage. He now can use the Democrats own words against them – which gives him political leverage to keep a tighter lid on the budget in future years.
Of course, that assumes that Bush has the political will to be a deficit hawk – but considering that the stimulus of the tax cuts will have pulled the economy back into solid ground by the 2004 elections he has more political maneuvering room than he does now. The deficit isn’t something that can be safely ignored, but it isn’t the “Great Unraveling” that ideologues like Paul Krugman are predicting. The US economy is growing, and that growth is direct result of the Bush Administration’s fiscal policy. While spending does need to be controlled, the wish for a balanced budget doesn’t mesh with the needs of a wartime economy.