Fact Based Economic Discussion

No debate about the budget deficit should be had without considering what Austan Goolsbee had to say in today’s Washington Post:

I think there’s some conventional wisdom forming among opponents of the administration that the deficit is getting bigger primarily because Obama is spending like crazy, and it’s totally wrong.

If you look at the 10-year budget, the reason that 10-year deficit is getting bigger, it’s first and foremost because the economy has gotten substantially worse, and as the current economy gets worse, it makes the 10-year deficit numbers significantly worse also. And that’s by far the biggest thing driving it.

The second is the President consciously came in and said, “We’re going to stop engaging in a series of budget gimmicks that are used to artificially make the 10-year deficit look smaller,” so things like, they put in zero dollars for natural disaster cost each year, even though there’s a hurricane season. So you would think that this is a somewhat regular expense.

Each year, they say, “Oh, my goodness. How could we have predicted there would be a hurricane hitting South Carolina this year?” And so the president said, “Look, let’s take the average cost for natural disasters. Let’s put it in the budget every year. Let’s stop saying the tax credit is only temporary. Let’s make it permanent because they renew it every year. Let’s stop saying we’re going to go cut all doctors’ salary by 20 percent at the end of the year and then, at the end of the year, saying actually we’re not going to do it this year, but we promised to do it all future years,” thereby keeping the long-run deficit smaller.

None of those are spending. The president is not spending anything that people were not spending before for all of those budget gimmicks. He is instead saying, “Let’s be honest about what the situation we’re in,” and so I would just encourage that people who are agitated about the spending to do two things.

The first is go look at the 10-year budget and ask how much of the increase in the 10-year deficit is actually due to new programs versus just being honest and just the state of the economy, and the second is, for this year and next year, while we’re in stimulus and Recovery Act land, in the face of the stiffest recession since 1929, that is not when you try to tighten the belt. It is extremely dangerous to do that. That is exactly what Herbert Hoover did that got us into the Depression.”

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