Earlier this week, interest rates on 10-year Treasuries plunged more rapidly than they had on any single day in the past six years. You would think that a political class that since the election of President Bush has continually fretted about budget deficits would have paid a little more attention. That’s because this week’s striking drop in long-term interest rates further undercuts the argument that the Bush tax cuts would explode the deficit, and that this would lead to higher long-term interest rates. In fact, interest rates are at historically low levels. They have not risen since Mr. Bush took the constitutional oath; they have fallen, even as the budget deficit has increased.

The most famous proponent of the argument that tax cuts lead to deficits which lead to higher interest rates which lead to slower growth is now a top official at Citigroup, Robert Rubin. He was better known as President Clinton’s treasury secretary. So you can expect to read a lot of Rubinomics in Mr. Clinton’s book when it hits the shelves next week. Mr. Rubin used to be at Goldman Sachs, and he’s been mentioned as a potential chairman of the Federal Reserve or as vice president in a Kerry presidency. When his argument against tax cuts takes as big a blow as it did this week, it’s worth noting.

There are two reasons for this most recent failure of the Rubin model. The first is a fundamental misunderstanding about tax cuts, growth, and inflation. One prominent economist, John Maynard Keynes, said that growth was inherently inflationary and that economic expansion would create an environment of “overheating” that would require bond holders to protect themselves from inflation by charging higher interest rates. According to Keynes, prosperity creates rising price levels and stagnation creates declining prices.

That’s because, for Keynes, the focus is on demand. Prosperous times stimulate demand, which bids up prices; lean times create a situation in which people can’t afford to buy finished goods. Prices decline. The Keynesian model has been refuted three times in the past three decades: During the 1970s, America had economic stagnation and price inflation at the same time (stagflation).During the 1980s, the economy was booming while prices remained stable. And the late 1990s saw hyper levels of economic growth coinciding with deflation.

A second mistake relates to the budget deficits that Keynesians say are caused by the Bush tax cut. These deficits, by the way, are dwindling as revenues surpass predictions. The assertion is that deficits drive interest rates up because government borrowing competes with private-sector borrowing, and this competition for capital results in higher interest rates. This is known as the “crowding out effect.”This effect does exist, but at the size of our current deficits compared to the tremendous resources of global capitalism, it’s minor.

The big drop in long-bond yields defied the conventional wisdom. We are not predicting that rates never will rise again. But every day of persistent low interest rates in a tax-cutting environment is an affront to high-tax, low-deficit orthodoxy. It’s something about which it would be worth asking the 42nd president on his book tour.