The Blog

Obama Administration: Oops, Make That a $9 Trillion Deficit

11:20 AM, Aug 25, 2009 • By MARY KATHARINE HAM
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

I'm pretty sure Obama "consistently said" the deficit might be $2 trillion more than his administration originally estimated, right?

The White House now expects the 10-year budget deficit to reach $9.05 trillion, roughly $2 trillion more than it estimated earlier in the year, according to a report released Tuesday by the Office of Management and Budget.

Budget office director Peter Orszag pointed to a number of measures put in place to stem the pain of the economic downturn.

The increase in the estimate comes, according to Orszag, as a result of, "a deeper-than-expected recession, certain spending programs (such as unemployment insurance and food stamps) are projected to automatically increase and revenues are projected to automatically decline, compared to our previous projection."

Well, keep in mind the recession, which is now "deeper than expected," would have been much, much worse if not for Obama. There's a selling point.

As an addendum to that bit of marketing genius, the Obama administration can now add Paul Krugman's argument that, "Hey, $9 trillion ain't really that bad," which is based on the idea that the deeper-than-expected recession, which would have been deeper if not for Obama, will still produce plenty of growth to handle the deficit:

There's been some hysteria about the administration's new estimate that the cumulative deficit will be $9 trillion over the next decade. Don't get me wrong: this is bad. But it's being treated as an inconceivable sum, far beyond anything that could possibly be handled. And it isn't.

What you have to bear in mind is that the economy - and hence the federal tax base - is enormous, too. Right now GDP is around $14 trillion. If economic growth averages 2.5% a year, which has been the norm, and inflation is 2% a year, which is the target (and which the bond market seems to believe), GDP will be around $22 trillion a decade from now. So we're talking about adding debt that's equal to around 40% of GDP.

Christina Romer forecasts that growth will return to normal between 2011 and 2016, despite revising GDP numbers downward this year and unemployment numbers up for this year and next.

Most importantly, we advised downward our estimates of GDP growth in both 2009 and 2010. Our year-over-year numbers are now -2.8 percent for 2009 and +2.0 percent in 2010. These, as Peter suggested, are very consistent with the consensus forecast.

This downward revision reflects new information that we -- and all forecasters -- received earlier this year about the severity of the crisis in the United States and in our trading partners...

I should also say that we do still expect positive GDP growth by the end of this year -- that is, we expect that the turning point, the economy on a better trajectory, but of course, full recovery and a return to employment growth will take longer.

We do predict a period of sustained above-normal growth in the period 2011 through 2016; then settling down to normal long-run growth of 2.5 to 2.6 percent... It is slightly higher than the Congressional Budget Office, but we think very accurate.

We also, in our economic assumptions, tend to have a significant upward provision in the unemployment rate. We are now predicting, again for an annual average, the unemployment rate of 9.3 percent in 2009, and 9.8 percent in 2010. We do predict that unemployment will reach 10 percent at least for some months or some quarters in this period.

Hasn't the entire argument of the Obama administration been that this deeper-than -expected recession (which would of course be deeper if not for Obama) is not the "norm," and that is the reason for any negative estimates or bad forecasts, not Obama's policy failures? And, yet Krugman, arguing as an Obama ally, and Romer predict that everything's going to be fine as soon as GDP growth gets back to normal, right on schedule to deliver Obama from another deficit readjustment. I'll believe it when I see it. And, if I don't see it, I look forward to Krugman explaining why $11 trillion really isn't all that bad, anyway.