2011 budget

The administration's announcement last evening that it was planning some type of freeze on nondefense domestic spending as part of its fiscal 2011 budget set off exactly the type of firestorm you would expect when a president proposes to limit or cut spending.

CG&G was, in fact, a perfect microcosm for the debate that is already underway.  Bruce wonders whether this is a replay of 1937, with fiscal restrictions being introduced too early in light of the slow growing economy.  Pete at the same time says that the president's plans are too small and won't have much of an impact on the deficit.

And those are just CG&G bloggers. Economic blogs everywhere were quick to jump on the announcement with much the same points.  I've seen little from either the right or the left that even comes close to applauding the proposal.

 This evening, the White House leaked President Obama's proposed three year freeze on non-defense discretionary spending not including certain Homeland Security, Veterans' Affairs, and International Affairs programs. That spending would be capped for the next three years at its current level of $447 billion, saving $250 billion over the next 10 years. That sounds like at lot of money, but it's not much when compared to the roughly $6 trillion of non-defense discretionary spending in the current services baseline budget. Most of that $250 billion will occur in the last five years of the next decade. With the decline of American Recovery and Reconstruction Act stimulus spending over the next few years, both OMB (Table S-3 on p.28) and CBO (Table 1-5 on p.20) show declining non-defense discretionary outlays from FY11 through FY13 already. Every little bit helps, but this is barely a budgetary fig leaf.

By now, the choreography used by a White House when it releases the president's  budget is almost standard.

It starts with the State of the Union Address the week before the release during which the president lays out the budget in broad themes in a nationally televised speech that typically draws the biggest audience the White House garners all year.  That usually results in several days of positive front page news coverage.

That's followed by carefully selected interviews and briefings that manage the news through the end of the week. 

The weekend adds to the buildup when the director of the Office of Management and Budget and other key administration officials appear on one or more Sunday talk shows and divulge a few more budget details.  This continues to create headlines.

The president's budget is then released on Monday and the White House's proposals dominate the news cycle for several additional days.

Senate Majority Leader Howard Baker (R-TN) once said that the first budget proposed by President Reagan was a "riverboat gamble."  My "Fiscal Fitness" column from today's Roll Call explains why this year's debate may more approprately be compared to Texas Hold 'em.

The pizza-loving Matthew Yglesias thinks my post yesterday characterizing the phrase "primary balance" as a communications ploy is too strong and that it has real meaning I shouldn't simply dismiss.

Economists and policy types may indeed recognize the concept of a primary balance (a balanced budget not including annual interest payments on the national debt) as valid and worthwhile as Matthew suggests.  As a policy/budget person, I have no problem with that.  Amen.

This op-ed piece from John Podesta and Michael Ettinger in yesterday's Financial Times provides a good idea of what to expect this year from the Obama administration as far as the budget is concerned.  Given how close Podesta is to the White House (he was, after all, the head of the transition team) and the fact that the organization he heads -- the Center for American Progress -- still appears to be the administration's thinktank of choice, it's possible and perhaps even very likely that this piece was used as a trial balloon for what the president is planning to say about the budget when he delivers the State of the Union on January 26.

If that's true, then the budget messages coming from the administration will be as follows:

1.  Given the sorry state of the U.S. economy, increasing the deficit was the appropriate fiscal policy last year.

2.  Now, with the economy recovering, reducing the deficit is the correct fiscal policy and the one we're going to be pursuing.

My column from Roll Call should only be read by those with strong stomachs.

Seeing the Future: The ‘FlashForward’ Version of the Budget Debate

The premise of “FlashForward,” one of the new shows on ABC this season, is that everyone in the world blacks out for a little over two minutes and then wakes up having seen a vision of the future. I had that type of vision last night about the coming federal budget debate: It’s going to be the most convoluted, frustrating and torturous in U.S. history.

This Associated Press story is creating a lot of unnecessary buzz in Washington.  In fact, the coverage may well be a total overreaction to a complete nonstory.

As reported by the AP, Office of Management and Budget Director Peter Orzag has told federal agencies and departments to prepare two possible fiscal 2011 budgets: one that holds spending flat and another that cuts spending by 5 percent.  That led the AP to say that the White House is planning a "budget freeze."

Here's the back story the AP didn't include.

1.  Almost all administrations ask agencies and departments to put together multiple budgets based on alternative scenarios like a 5 percent increase, a 5 percent decrease, and no growth.  So the fact that the Obama White House has asked for multiple options not only is no big deal and definitely not news.

Pete does a good job with an overview of the numbers from the mid-session budget reviews released this morning by OMB and CBO, so there's no need to repeat them.

It's important to note, though, that there are some indications that even the lower-than-previously projected deficit included by OMB in its report may be lowered further when the final numbers for fiscal 2009 are released in late October.  As Donald Marron posts on his blog, the actual deficit may well end up closer to $1.4 trillion than $1.6 trillion.

No matter what the actual deficit is, it is clear from reading the two reports that very little can be blamed on either the Obama administration or the current Congress.  Bruce Bartlett sent the following e-mail earlier today (which is quoted with his permission) with an excellent analysis: