2009 deficit

I've been saying for a while that, contrary to the GOP rhetoric that the sky is falling, the 2009 and 2010 deficits were and are the absolutely correct fiscal policies.  Back in October I called the $1.4 trillion deficit "a triumph" and said it was clear that's what needed to be done given that businesses and consumers weren't spending and, most importantly, that monetary policy had done just about all it was going to be able to do.

Paul Krugman yesterday provided three paragraphs in an excellent longer piece that explained this further:

My column from today's Roll Call has already generated "a few" comments.  All responses welcome.

2009 Deficit Is a Triumph of Fiscal Policy

Oct. 20, 2009

Despite the headlines and the page-one, right-hand column, above-the-fold stories in the New York Times and Washington Post on Saturday, I’m not at all upset about the 2009 federal budget deficit.

You shouldn’t be either.

My column from Roll Call today explains why the 2009 deficit was lower than expected, who's to blame, and why 2011 rather than 2010 is when the real deficit reduction fight will start.  Then again, the 2011 fight will begin in only a few months.

Oct. 13, 2009

The Congressional Budget Office was much in the news Wednesday when its cost estimate showed that the health care bill being considered by the Senate Finance Committee would reduce rather than increase the deficit.

Actually, as this report last night from the Associated Press points out, the leak from the administration says the 2009 deficit will be less than $1.6 trillion -- $1.58 trillion to be exact.

Several things to keep in mind as the debate on this plays out over the next few days leading up to the release next Tuesday of both the Office of Management and Budget and Congressional Budget Office mid-session reviews.

1.  This lower-than-previously-projected deficit could end up being even lower when the final numbers are released in just about eight weeks.  The reason: It's not yet clear whether the mid-session is completely taking into account that the $250 billion the administration included in its original budget for additional help for Wall Street this year won't be provided.  It is entirely possible that only part of that has been taken out of the deficit calculation in the mid-session.

Don Marron picked up on my post from late last week about the possibility (which based on additional discussions over the weekend I now officially upgrade to "likely") that the fiscal 2009 deficit will be much less than expected and did his usual good job of advancing the conversation several steps in the process.

But in spite of the fact that it's the correct fiscal policy, even a $1.6 rather than the previously projected $1.8 trillion deficit will be an excuse by some to say ridiculous things about the current state of the federal budget.  After all, $1.6 trillion would still be way above the previous record-high deficit of $455 billion set in 2008 during the last year of the Bush administration.

But that's not the right comparison and those that choose to use it will clearly be doing so in an effort to mislead and demagogue.  Here's why.

I hate to say I told you so, but I'm starting to pick up rumblings from both Treasury and Wall Street that the fiscal 2009 deficit could end up being lower, and maybe even substantially lower, than was projected when the White House released its budget earlier in the year.

The word is that the deficit, projected at about $1.8 trillion in May, could come in at around $1.6 trillion instead.  That would still be an all-time high compared to the $459 billion record set in 2008, but it would be way below the initial estimate.

If this is true, it's not clear whether it will be reflected in the mid-session budget review the White House amy release next week.  The administration could decide to wait until the fiscal year ends in about six weeks to show the lower deficit.

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.