From NYT (May 1, 2010) ---
It takes varied reiterations to force alien concept upon reluctant minds. So let me say it one more time with feeling --- government administrations at all levels have a natural proclivity to spend more than they bring in (deficit finance), this results in accumulated public debt, which the current political generation has a strong incentive to pass on to future generations, and one way to try to pass that on is to monetize the debt (hidden 'tax' of inflation). This cycle of deficit, debt and debasement is the "juggling trick" that Adam Smith identified as the circus act that all governments ancient and modern engage in, unless they are effectively constrained from doing so. Constitutional political economy (the field James Buchanan invented in economic research) is that area of research that examines the analytical puzzle of constraints and the empirical implications of the effectiveness (or lack of effectiveness) of those constraints. It is a field that is under-appreciated in the discipline. In short, we do not talk enough as economists about the mechanism that effectively tie the ruler's hands.
What makes us think our current situation in the US is any different from the situation in Europe, let alone the cycle of deficit, debt, and debasement that Smith identified so long ago? Look around at the fiscal situation in CA and NJ; look at the problems with local school budgets, let alone the budgetary crisis facing state universities throughout the US.
Is our moving equilibrium what we are currently seeing in Europe? If so, isn't our current policy path simply moving us quicker along that path? Stare at the graphic, shouldn't that make all policy makers and intellectuals wake up from their intellectual complacency?