Barack Obama, Deficit-Slayer
The Last Laugh
There’s a lot of political concern in Washington about public anxiety about budget deficits. Substantively, the public’s concerns don’t really make sense, as deficit-reduction amidst a severe recession will only make the recession more severe. But Stan Collender, whose deficit hawk credentials should not be in question, observes that the political problem is largely a mirage as well:
If you look beyond the very short-term, the deficit situation will begin to turnaround next year, that is, before the election. Under current forecasts, the deficit will fall by a record amount from 2009 to 2010. It will still be high by virtually anyone’s standards — probably around $1 trillion or so. But the big change in the right direction will give the White House the breathing room it needs and alter the politics substantially. Anyone want to bet that there will be a cover story somewhere next year calling Obama the deficit killer?
This will, of course, not be a substantive fix for anything. But the nominal deficit reduction will, indeed, be huge. As the economy recovers, tax revenues will rise, social safety net outlays will fall, and stimulus measures will begin to tamp down. If we can assume further growth in 2011, the complete expiry of Recovery Act provisions, and the winding down of the Iraq War, that’ll be further deficit reduction. On the merits, people would still do well to be concerned about the deficit further out when, in the absence of structural reform of the health care sector, Medicare costs will bury us all. But in the short term, things are going to look worse than they really are in 2009 and then look better than they really are in 2010. And of course people vote in the even-numbered years.
26 Responses to “Barack Obama, Deficit-Slayer”
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June 22nd, 2009 at 12:23 pm
Let’s not forget TARP repayments.
June 22nd, 2009 at 12:28 pm
In other words, people are going to get a basic lesson in cyclical deficits (even if they don’t know the name).
That said, I agree the structural deficit Obama inherited needs to be addressed down the road, although Obama can only hope to get that process started in the time he will have in office (even assuming two terms).
June 22nd, 2009 at 12:31 pm
I use the analogy that worrying about the deficit right now is like bitching to the firemen putting out your house fire that they may be flooding the basement with all that water. Definitely not today’s number one concern.
June 22nd, 2009 at 12:38 pm
There’s a lot of political concern in Washington about public anxiety about budget deficits.
Interestingly, there was little political concern in Washington about budget deficits when the question was whether or not to spend $2 trillion on tax breaks that overhwelmingly benefited the wealthy.
But now that we’re talking about $1-2 trillion on health care for all Americans, Washington has decided deficits matter.
Discuss.
June 22nd, 2009 at 1:08 pm
Can I be Cordelia?
June 22nd, 2009 at 1:14 pm
If we can assume further growth in 2011…
Everyone needs to read this. The medium and long range prospects for economic growth are dim. Given the fact that current global spare oil production capacity is likely under 5 million barrels/day, we might eke some growth out through 2011 but the return of $100+ oil will, in due course, nip that in the bud pretty emphatically.
Progressive really need to start thinking about Herman Daly’s steady state economics because solving our problems through growth is looking increasingly like it’s off the table.
June 22nd, 2009 at 1:20 pm
I think the way to address the longer term concerns (on the revenue side, that is), if we had healthier politics and governance, would be to enact tax increases in the short term (ie., now, or some time this year) but have them take effect some time down the road (after we’ve passed the danger zone; 2011? 2013?). You know, enact a VAT, and boost marginal rates on the wealthy, but the legislation doesn’t become effective for several more years. I have a notion we’d get the best of both worlds if we could do this: we’d signal the bond market that we’re serious about paying our bills, and indeed have set ourselves on a course whereby US government paper will be a much scarcer thing in the near future. But we’d also be dodging the scenario of 1937.
June 22nd, 2009 at 1:26 pm
This guy Collender is a moron.
First of all, CBO projects the 2010 deficit, based on Obama’s budget, to be $1.432 trillion. That’s down from $1.825 trillion in 2009.
Only unbelievably committed pro-Obama partisan hacks would call Obama a “deficit killer” because the Obama deficits went from $1.825 trillion to $1.432 trillion. No doubt that this guy Collender is a committed pro-Obama partisan hack – but this is a pretty dumb way to show it (beside making the elementary error of understating the projected Obama 2010 deficit by more than 25%).
June 22nd, 2009 at 1:30 pm
. . . the deficit situation will begin to turnaround . . .
When used as a verb, “turn around” should be two words, much like “log in” (which no one gets right, by the way). Only in their noun forms are these single words. Sorry to be the grammar nazi, but this is a real pet peeve of mine.
June 22nd, 2009 at 1:46 pm
and in Jan 2011 the first round of Bush tax cuts for the wealthy (including the temporary complete abolition of the estate tax) will expire, generating billions of dollars in revenue that weren’t there in 2010 – that can only help pare the deficit. Since the Republicans were so eager to label the expiring tax cuts as Democratic tax increases, I certainly hope that the Democrats respond in kind and take complete credit for effectively lowering the Bush deficit.
June 22nd, 2009 at 2:12 pm
Yeah, the press’ll TOTALLY credit Obama with deficit reduction. More likely headline: Congressional Republicans Bravely Fight to Cut Deficit. Then they’ll interview John McCain and Bobby Jindal.
June 22nd, 2009 at 2:56 pm
Yeah, the press’ll TOTALLY credit Obama with deficit reduction.
Yeah, because the press just hates Obama! Oh, by the way, what flavor of icecream did Obama have yesterday? Let me get my New York Times and find out.
June 22nd, 2009 at 3:00 pm
Web 3.0 will fix everything.
June 22nd, 2009 at 3:02 pm
Matt writes:
“This will, of course, not be a substantive fix for anything. But the nominal deficit reduction will, indeed, be huge. As the economy recovers, tax revenues will rise, social safety net outlays will fall, and stimulus measures will begin to tamp down.”
This sunny scenario might happen. Then again, it might not. We might find that spending several trillion dollars providing stimulus and backstopping Wall Street has consequences. We may have to defend the dollar in 2010 by raising interest rates. We may have a severe case of inflation which will slow growth, slow government revenues, increase government outlays and cause unemployment to soar.
Of course I am sure that none of this will be Obama’s fault,
He’s infallible. We’ll blame congress or Bush or a Clinton or whomever. He’ll have tossed Geithner and Ben under the bus
no doubt already so they will get their fare share of blame too.
June 22nd, 2009 at 3:54 pm
I think this post definitely falls into the “whistling past the graveyard” category
http://www.usingenglish.com/reference/idioms/whistling+past+the+graveyard.html
June 22nd, 2009 at 4:20 pm
I think the phrase “Rosy forecast” needs to be dusted off and handed from the old Reagan budget staff to the Obama-ites. Clearly, they’ve reached a new level of delusional thinking.
You might ponder this chart
to get an idea of just how far down the well we are, and how hard it will be to crawl back out. Unemployment will remain high even if we return to 90’s levels of growth. Which means that deficits will also remain high.
But go ahead, put the rose colored glasses on…
June 22nd, 2009 at 4:24 pm
And as for the expiry of the Bush tax cuts generating lots of wealth, you might ponder the "millionaires tax" here in Maryland. Worked so well locally, I’m sure it will go well nationally. What you guys forget is that the truly wealthy have lawyers who find loopholes.
That expiration will generat less revenue than you think it will.
June 22nd, 2009 at 4:34 pm
The problem for Obama is that even though he brings deficits down and keeps them at a consistent level as a fraction of GDP (by the estimates in his budget), they rise in real dollars. This rise can be wholly attributed to the change in revenue for Social Security (going from a surplus to a deficit during the projected period, IIRC).
This isn’t to say that Social Security is in danger or a problem, but that including its revenues and outlays in calculating the Federal deficit/surplus was a convenient way to engage in deficit spending without it looking that way that’s not such a convenient convention today.
June 22nd, 2009 at 5:44 pm
1. Get Elected
2. ?
3. Eliminate Deficits
Yeah…I’m going to screen shot this post..because I KNOW you’re gonna want to make this one disappear in Fall of 2010!
June 22nd, 2009 at 6:36 pm
Re: Worked so well locally, I’m sure it will go well nationally.
It’s entirely possible that the decrease in Maryland millionaires was due to the recession– a lot of people lost a whole lot of money in the stock and reak estate markets after all. But let’s assume that Maryland’s millionaires packed up and moved to West Virginia. That’s fairly easy to do. It’s a lot harder to pack up and move out of country- especially when tax rates are higher in every other country that has a decent standard of living and a functional social and political system. To be sure, a billionaire can just buy himself an island and become his own god and government, but your average millionaire does require a functional society, one not prone to political upheaval and random violence around him. So my guess is that if we restore the tax rates of the 90s or even the 80s, the millionaires will stay out, having no where else to go
June 22nd, 2009 at 6:38 pm
Re: So my guess is that if we restore the tax rates of the 90s or even the 80s, the millionaires will stay out, having no where else to go
The above should read “So my guess is that if we restore the tax rates of the 90s or even the 80s, the millionaires will stay PUT, having no where else to go”
(A typo worthy of Matt)
June 22nd, 2009 at 7:31 pm
If it is medicare costs… well euthanasia. Getting rid of boomers is never really a bad thing.
June 22nd, 2009 at 8:05 pm
JonF
Two things: First, very wealthy people tend to be able to adjust what counts as income much more easily than the rest of us. Second, the US is in recession (and will remain in one for a long time if the present policies continue to be followed).
So I expect that raising taxes on the rich will bring in less revenue than expected. Finally, there just aren’t enough rich people around to fund the kind of deficit spending we’re engaged in. The broad middle is going to have to pay, Obama’s “95%” theories notwithstanding
June 22nd, 2009 at 9:54 pm
You seem to not understand the concept of inflation.
June 22nd, 2009 at 9:57 pm
The Republicans have wagered their political future on that statement. Only time will tell, though I’ve often stated that our economic future is more determined by the price of oil than a tax bill here or a spending bill there.
June 23rd, 2009 at 10:25 pm
We may have a severe case of inflation which will slow growth, slow government revenues, increase government outlays and cause unemployment to soar.
You seem to not understand the concept of inflation.
Let’s phrase it differently:
We may have a severe case of inflation that will slow real growth, slow real government revenues from taxes (although the government will get revenue from the printing press), make government increase its outlays, at least in nominal terms, and cause unemployment to soar (or cause people to work really hard for a wheelbarrowful of worthless cash).