A kinder, gentler deficit. (Competing Interests).

For the first time in more than five years, budget deficit politics have returned to Washington.

Remember that vaunted 10-year, $5.6 trillion surplus we were looking forward to in 2000? Easy come, easy go. The Congressional Budget Office reports that more than 90 percent of it is already gone. And in the fiscal year that ended Oct. 1, the government notched an annual deficit--$157 billion--for the first time since 1997.

The suspects are almost as numerous as those in a game of Clue. There are the Bush tax cuts and the $45 billion tax rebate, as well as federal spending on everything from homeland defense to the farm bill. The slumping economy has sliced corporate profits, and hence corporate income taxes. And the stock market just isn't generating capital gains taxes like it used to. Nor does it help that the government's long-term budget planning is about as accurate (or inaccurate) as a 10-day forecast on Yahoo!'s weather site.

Leaders of both parties view the sudden reemergence of the deficit with alarm. President Bush, who has yet to wield the veto pen, threatened in August to veto $5 billion in spending added by Congress to a homeland security appropriations bill, even though he had asked for many of the funds. "Excessive spending will serve as a drag on economic growth," he warned.

The argument that deficits swallow capital that might otherwise go to the private sector has dogged budget debates since the government began reporting shortfalls in the 1930s. But today's deficit is different, and both sides misjudge its impact and importance.

This time, we're running a deficit for the right reasons. The private sector has benefited from much of the spending that has contributed to the current deficit. This includes a $5 billion airline bailout and many billions spent on homeland defense. Certain industries stand to gain more in 2003, when the homeland defense budget will nearly double. Pharmaceutical companies could reap contracts from the $1.7 billion set aside for research on vaccines and therapies to fight biological weapons. And defense contractors may receive massive new orders if the global war on terrorism continues. What's more, much of last year's tax rebate was funneled directly into consumer spending. In fact, this combination of tax cuts and increased government spending is exactly the cure that the economist Maynard Keynes first ordered many decades ago to boost slow economies. And as Richard Nixon once declared, "We are all Keynesians now."

Besides, if we look back on earlier budget deficit eras, as a nation we're far less leveraged than we have been for much of the past half century. During World War II, the deficit accounted for as much as 30 percent of gross domestic product. In the l980s, it represented 5 to 6 percent. By contrast, the $157 billion deficit in 2002 constitutes only 1.5 percent.

Then there's the idiosyncrasy of the interest rate climate. Given the rapid deterioration in the nation's balance sheet since the beginning of 2001, one would have expected a spike in interest rates paid by the government, and in turn by everybody else. But interest rates on government debt have continued to plummet to record lows in the past two years. Falling rates have proved a great stimulus, from mortgage refinancings to auto sales.

Of all the woes afflicting the economy today, in fact, the deficit doesn't even rank in the Top 10.

That's not to say deficits are irrelevant. They do matter, but only in the long-term. And therein lies the real risk posed by red ink. In the past few years, we've seen structural changes in the spending habits of Congress that could keep us off kilter. Spending by the Republican-controlled House since 1994 hasn't been any more frugal than you'd expect from a Democratic House. For the past eight years, discretionary government spending has outpaced inflation.

Domestic spending will likely continue to rise at roughly today's rate of 7 percent throughout this decade. The danger is that revenues won't grow as swiftly, or worse, will continue to fall. After all, the largest impact of the backloaded tax cuts will be felt years from now, and there's ample reason to think that late '90s revenue figures aren't good baselines.

By the end of the decade, then, the deficit and the national debt may warrant genuine anxiety. But that's a long-term issue. And in Washington a long-term thinker is somebody who is focused on the 2004 election.

Daniel Gross, author of Bull Run: Wall Street, the Democrats, and the New Politics of Personal Finance, writes the "Moneybox" column for Slate.