In the next few weeks, the United States will be focused on deﬁcit reduction. Analytically, the task of deﬁcit reduction is simple: cu!ing expenditures and raising taxes. Politically, the task of deﬁcit reduction is enormously difficult, for each cut in expenditure or increase in taxes hurts someone, and typically, some powerful group. … What matters is not the deﬁcit itself or the short-run national debt, but long-run levels of the national debt. The country should be looking at its national balance sheet. Debt reﬂects only the liability side. In assessing the economic strength of a ﬁrm, no one would look just at its liabilities; they would also look at its assets. The single-minded focus on deﬁcits and short-run debt is thus fundamentally misguided.