2009 deficit

In previous years we would have been breaking out the champagne on this news: The monthly budget review released yesterday by the Congressional Budget Office estimated that the federal budget deficit fell by $125 billion from 2009 to 2010.  This by far is the biggest one-year nominal drop in the deficit that has ever occurred.

There were two primary reasons there was no cheering yesterday.

First, it's not at all clear that reducing the deficit was the correct fiscal policy given the slow growth in the U.S. economy.

Second, in the current political atmosphere even a 50 percent reduction would have still left lots of room for those who want to do so to use the deficit as an issue.  To those folks, the $125 billion reduction simply isn't as important as the $1.29 trillion deficit that's available for campaign fodder.

In other words, the $125 billion reduction in the deficit was both too much and not enough.

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.