Aquiet but important debate is breaking out inside the Democratic party. It will largely   determine whether the Democrats, should they win back the White House in 2008 and maintain majorities in Congress – as seems increasingly likely – will have enough revenue to do the things that need to be done in the nation. The debate is over the importance of reducing the budget deficit and the goal of a balanced budget.

In many ways it is a continuation of a debate that began at the start of the Clinton administration. The difference is that then the budget deficit hovered at about 5 per cent of US gross domestic product and there was broad consensus it had to be reduced. Now, the budget deficit represents only around 2 per cent of GDP, close to its historical norm. Yet it has become an article of faith among some Democrats that fiscal prudence is a necessary precondition for economic health.