We agree on the basic economics, ie repayment in full (which is also what Wolf advocates).

Further we have just witnessed a perfect implementation of this theory- after the dot com crash, government lowered interest rates below inflation, making free money and spent massively running up record deficits.

Ah...see I have a problem with this - with luck we can disagree without falling into partisan bickering. 'Government' is not this indifferent entity that does whatever it wants, it's people implementing policies, and I think you're glossing over the details.

So we had a small notional surplus at the end of the last decade, and in 2000 we got a change of administration. We agree (I hope) that the seeds of the dot-com bust were already rooted; I don't blame any political figures in particular for that. Greenspan warned about 'irrational exuberance' etc., and pretty much everyone I knew told him to shut and stop being a party pooper. Sometimes people just have to learn the hard way.

But the new administration came in and gave people a tax cut, on the principle that if the treasury was running a surplus then it should be giving the American people's money to them (the same tax cuts which are supposed to be expiring soon). Just so we're on the same page, when I refer to EGGTRA I'm talking about the 2001 tax cut and by JGGTRA I mean the 2003 (post dot-com bust) one:

http://en.wikipedia.org/wiki/Economic_Growth_and_Tax_Relief_...

http://en.wikipedia.org/wiki/Jobs_and_Growth_Tax_Relief_Reco...

Now, I say you're 'glossing over' things with your analysis, because while there are policy justifications for both cutting taxes to stimulate growth and paying off debt (less lovely cash in your pocket, but less long-term interest accruing while you sleep), it seems rather disingenuous to complain about government failing to pay off the debt and ignore the fact that the administration of the day opted to cut taxes and make up any shortfall with borrowing.

Even the budget director at the time, Paul O'Neil, thought this was a dreadful idea, and by 2002 was expressing his alarm at the ballooning deficit, allegedly causing VP Cheney to respond with the argument that "Reagan proved deficits don't matter." O'Neil departed the White House by the end of that year. Now, several people have argued that the Clinton 'surplus' was no such thing, and amounted to little more than an accounting trick (for example http://www.craigsteiner.us/articles/16). There is some merit to this argument, but it is not disputed the the rate of increase in the national debt slowed down during that period, nor that it was ~$5.8t when the White House changed hands in early 2001.

After that, deficits ballooned and the debt swelled considerably. A lot of people (like me) expressed the belief that cutting taxes like this was a terrible idea - a justifiable war of the kind the US undertook after 9/11 is one of the few occasions where you can persuade people to tolerate higher taxes, because a situation of genuine military necessity exists. It would have been better (in my view) to either use available revenue to slow the rate of deficit growth, or at least to pay for the Afghan war. Come 2003, and the administration launched a second war and another tax cut. At the time, objections to this were generally dismissed as loony leftism or sour grapes or lack of patriotism. I don't want to rehash all of those political issues, but from an economic point of view war is expensive and I haven't seen evidence to suggest that the tax cuts significantly boosted revenue - in fact, I agree with you that low, low interest rates had more to do with the asset bubble which followed.

Now those tax cuts are set to expire, and because one party has suggested that perhaps it would be sensible to extend them for the great majority of people who earn under $250k/year (and that the increase on those making above would still leave them paying less than in Reagan era), the other party has taken its ball and gone home - rather than roll them back partially for now and fully later, they've instead committed to making them permanent, which means a ~$4t hole in projected revenues, right around the time we are entering a demographic retirement bulge, and a good deal of our infrastructure is in very poor shape.

It's all very well to wag the finger and say it's time to lay off the fiscal moonshine, but I find it really hard to take seriously lectures about debt which blithely a policy of repeatedly substituting borrowing for revenue.