The Traditional View (TV) of large deficits and debt is they have large economic costs, save in a recession and early recovery, because they crowd out investment and lower future income, and taken to extremes, can cause inflation and even a financial crisis.

Unexpected inflation devalues nominal government bonds. It must therefore correspond to a decline in expected future surpluses, or a rise in their discount rates, so that the real value of debt equals the present value of surpluses. I measure each component via a vector autoregression, in response to inflation, recession, surplus and discount rate shocks. Discount rates, rather than deficits, account for most inflation variation. 

Supporters of a federal public option contend that a government-run health plan will reduce federal deficits. These projected deficit savings are predicated on two major, but unrealistic, assumptions. First, public option proposals assume that the government will reimburse hospitals and providers at rates lower than paid by private insurers. Second, the proposals require plan premiums to fully cover plan costs. 

The Democrats are facing a dilemma: If they defend democratic norms by acting to remove President Trump from office, they risk getting dragged into a polarizing style of politics that works to his political advantage.