2009 Deficit Reaches $1 Trillion. You Were Surprised?
The Treasury announced and the media dutifully reported yesterday that the fiscal 2009 federal budget deficit reached $1 trillion in June. Here's what Bloomberg said in the first two paragraphs of its story:
July 13 (Bloomberg) -- The U.S. budget deficit topped $1
trillion for the first nine months of the fiscal year and broke
a monthly record for June as the recession subtracted from
revenue and the government spent to rejuvenate the economy.
The shortfall for the fiscal year that began Oct. 1 totaled
$1.1 trillion, the first time that the gap for the period
surpassed $1 trillion, Treasury figures showed today in
Washington. The excess of spending over revenue for June was
$94.3 billion, the first deficit for that month since 1991,
according to data compiled by Bloomberg.
This is anything but a surprise; $1 trillion is just a stop along the way to where the deficit ultimately is going this year -- about $1.8 trillion -- and we've known that was going to happen for months.
It's also not alarming. In fact, a deficit of at least this size is the correct fiscal policy given the state of the economy and the need for Washington to provide the boost that businesses, individuals, and state and local governments are not doing.
The fact that the deficit reached $1 trillion for the first time needed to be reported, but it doesn't deserve to by hyped.
A policy (e.g.,
A policy (e.g., deficit-financed stimulus) can be "the correct fiscal policy" AND have side-effects (e.g., a $1.8 trillion deficit in the context of our long-term fiscal outlook) that are "alarming" (i.e., causing fear by indicating some danger or future harm).
As for "hyping" the $1 trillion milestone, while it obviously should not be (and I assume is not) reported as surprising, if highlighting this milestone is one way to remind people of what the deficit will be, more broadly of our unsustainable long-term fiscal imbalance, and of the relationship between the two and the extent to which this year's deficit worsens our long-term fiscal imbalance (vs. prior projections and arguably vs. less or different deficit-financed stimulus) I say "Hype away!"
What milestone?
Hey, we're going to zoom past that milestone so fast nobody will even see it.
But we may recall it later. Let's see, the Social Security actuaries use basically a 6% interest rate on US debt for long term projections ... 6% per trillion dollars is $60 billion ... and there are 80 million payers of income tax in the US (47% of "tax units" pay no tax or receive refundable credits from the government) ...
So adding $1.8 trillion to the deficit works out to an additional interest cost per taxpayer (interest on US bonds is paid with taxes) of $1,350 annually, and presumably compounding to the extent the govt doesn't get better at paying down its debt, and also remembering there may be more than one taxpayer per family ... forever.
Well, maybe $1,350 per taxpayer annually forever isn't so bad as the price of mitigating a bad recession for one or two years. It's just a one-time thing.
Although it would be nice to see some economist actually consider this dollar cost in a public discussion of the stimulus. I haven't seen even one do it yet.
And then there is that $64 trillion of debt, explicit and implicit, that was already outstanding at the end of 2008.
Hmmm... $64 trillion times 6%, divided by 80 million, equals an annual interest carrying cost per taxpayer of ... yikes!!
I get it! When you are already so far in debt you can't possibly even carry it in the long run, hey, there's nothing at all to lose by piling on a nice chunk more to make life more comfortable in the short run!