NEW YORK (Money Magazine) - If you are confused about the direction of our economy and our markets, about whether tax cuts will help create jobs and whether deficits are a solution or a problem, you are in very good company.

The Bush administration says that the tax cuts will stimulate the economy. Democrats say that the tax package will help only the rich and won't create jobs. Meanwhile, others are worried about the growing twin deficits: the budget deficit and the trade deficit.

To assess it all, I turned to two of the country's best financial thinkers: Pete Peterson, chairman of the Blackstone Group and a former Commerce secretary and chairman of the Federal Reserve Bank of New York; and Wayne Angell, a former governor of the Federal Reserve Board and chief economist at Bear Stearns.

Both are original and independent thinkers. While they have very different views on several key issues, they offer us compelling guideposts to our likely economic future.

Peterson and Angell agree that the economy will improve, to some degree, because of all the stimulus generated by the federal government.

"If you've got probably at least a $425 billion or $450 billion deficit coming, that's a very big fiscal stimulus, and another $175 billion or something like that [in the next 18 months] from the tax cut," Peterson says. "Between the two you're looking at about $600 billion or a bit more of stimulus, which is over 5 percent of the GDP [gross domestic product]. This is a lot of stimulus. So I expect the economy to improve over the next year."

So does Angell. In fact, he sees our growth rate more than doubling in the second half of the year to around 3.5 percent. He thinks labor productivity will rise to 5 percent a year this year and the next. This means that with even a 3.5 percent growth rate, the economy would still be underperforming.

"We need to grow real output at a 6 percent real rate for six years, given this tremendous capital goods productivity that is available for us. This is an unprecedented period of labor productivity, and it's going to be a wonderful thing for corporate profits in 2004 and the second half of 2003. But it's going to take some time before [we see] employment gains."

Angell says that high unemployment will remain a problem. "But if we had not had the tax rate cuts," he adds, "it would have been an even more alarming story to tell."

While service-oriented businesses might see job growth, says Peterson, "in the manufacturing sector, I think the pressure to keep costs down is going to be very high."

Peterson is most concerned about the impact of the tax cuts on the budget deficit and the future of the economy. "Everybody points out that we've had deficits that were 4 percent of the GDP before," he says. "What is alarming to me is the long-term picture. That [even though these tax cuts are set to expire] they will be kept on more or less permanently. It's the long-term problem that is the immensely sobering one."

Record trade deficits concern Peterson as well. "In the Reagan period, you may recall that the dollar fell by a third [on average against major currencies] and 50 percent against the yen," he says. "Then, the current-account deficits were 3.7 percent of the GDP. We're now north of 5 percent. We've never had current-account deficits anywhere near this number. So we are immensely dependent on foreign capital."

Angell says that tax cuts, deficits and low interest rates will pay off in economic growth and higher tax revenue. In fact, he believes that the deficit will move down dramatically in 2005, 2006, 2007 and 2008. The debt that worries Angell is closer to home: "My concern has been that we pass so much household debt forward."

Peterson is also worried about Social Security shortfalls. He contends that it was a mistake for the Bush administration to have spent the budget surpluses in 2001.

No one should count on much help from the Social Security trust fund, says Peterson: "In the first place it's not funded, and in the second place, you shouldn't trust it."

In his view, the administration should have "taken those huge surpluses that we had and used them to fund Social Security."

So what should be done now? Peterson points to the United Kingdom.

"What [Prime Minister Margaret] Thatcher did, which was quite brilliant in my view, she indexed these benefits to inflation instead of to wages. And that way she can say, 'Your children and you are going to get the same benefit in real dollars,'" he says.

"But over a period of 30 years or so it makes an enormous difference, because as a percent of GDP the costs go down and are projected to be much lower than they are in other countries. So if you look at the rest of the world, Great Britain's increase in benefits as a percent of the GDP is a fraction of [that in] the rest of the world."

Angell points out that there is a "bit of good news" that isn't getting a lot of attention: 401(k) plans.

"When the baby boomers retire, we'll have people that have deferred incomes for 40 years," he says. "This is going to be a real bonanza for federal tax receipts in the future, because naturally the present value of the income stream in equities in corporations is going to be much larger, the payout ratios are going to be much higher. Of course, Uncle Sam's going to benefit from all this."

Regarding the Medicare budget shortfalls, Angell says that conspicuous consumption may be the culprit. "We've got to stop increasing these future liabilities at the current rate because it's impossible to do that.

"Medical technology causes everyone to want more of a very, very good thing. And when we say that's what everyone deserves to have, then it's almost like saying that everyone wants to drive the fanciest Mercedes or the fanciest Cadillac or the fanciest Lexus out there, and yet we cannot afford these medical services. So [consumption of medical services] has to be constrained."

Constraint is certainly not in the current political lexicon.

With the stimulus of the tax cuts, a budget deficit that may reach almost half a trillion dollars and interest rates at their lowest point since 1958, it seems inconceivable that our economy would not respond with significant growth.

Our policy makers are now telling us that rising budget and trade deficits, and the prospect of inflation in later years, are problems that are preferable to an underperforming economy with the accompanying risk of deflation. This time, I agree with them.

Lou Dobbs is the anchor and managing editor of CNN's Lou Dobbs Tonight.