Many economists have long argued that the major problem with continued federal budget deficits is they crowd out private-sector investment. The way it works, according to the economists, is that additional government bonds must be sold to someone, and in order to make them attractive to investors, interest rates rise. The trouble with their argument of late, of course, is that interest rates are near all-time lows in spite of a $374 billion federal deficit for the government bookkeeping year that ended Sept. 30 and projected deficits of $450 billion and $500 billion for the next two fiscal years. This has permitted the deficits-don't-matter crowd to claim they are doing the right thing, providing the necessary short-term stimulus to get the U.S. economy moving again. On the basis of the surprisingly robust 7.2% growth in the third quarter, they would appear to be correct -- at least for the moment. But it can't last. In the past, the money that was used to purchase Treasury securities came right out of the money that would otherwise have gone into capital spending. But the U.S. doesn't pay for its own deficits any more. Foreign investors do. In fact, as large as the FY 2003 deficit was, it was dwarfed by an expected $544 billion current account deficit. Since the world is on a de facto dollar standard, those extra dollars flow back into the U.S. and are used to buy all those additional government bonds. What would happen if the Federal budget returned to surplus? Right now that sounds like a hypothetical question, but of course it happened in the late-1990s. The movement started in 1995 after the Republicans took over the House, although the budget deficit itself was not erased until 1998. The money went into the stock market and capital spending, with tremendous booms in both sectors. But how did manufacturing fare? It depends on what measure you want to use. The total number of manufacturing jobs from 1995 to 2000 (before the recession started) did not rise at all in spite of the impressive surge in overall growth. However, most of the lost jobs were in low-paying non-durable goods industries, where NAFTA and other changes to trade agreements shifted jobs to low-wage countries. Over 500,000 jobs were lost in textiles, apparel, food processing and leather products. By comparison, employment in fabricated metals, machinery, electronics and transportation equipment rose an average of more than 100,000 each over this same period, for an increase of almost 5% in those sectors. In general, those are the high-paying jobs that everyone wants to retain in this country. The gains were made possible largely by a dazzling 74% increase in purchases of capital goods over that same five-year period. The outlook is actually not that complicated. To maintain "good jobs at good wages" in the U.S., we need a healthy dose of capital spending, which depends on rising profits and rising stock prices. If the Federal budget deficits siphon those funds out to the bond market -- as purchased by both domestic and foreign investors -- that won't happen. It's not that the tax cuts don't get spent. Most of them do. For that matter, higher government spending also creates more demand for those goods and services in the short run. The result is more consumption and less investment. So in the short run, that's a wash. In the long run, a decline in the investment-to-consumption ratio means lower capital spending, slower growth in productivity, a lower standard of living -- and a decline in the number of high-paying U.S. jobs. Michael K. Evans is chief economist for American Economics Group, Washington, D.C., and president of the Evans Group, an economics consulting firm in Boca Raton, Fla.