OMB: $1.39 trillion in deficit spending over 6 years

Yes, that's right. The White House projects $1.39 trillion in deficit spending between 2003 and 2008, and that assumes average growth of 3.3% each of those years. So much for the idea that the deficit will take care of itself from higher projected revenues. Better yet, many economists think this is an overly optimistic expectation.

http://money.cnn.com/2003/02/04/news/economy/budget_outlook/index.htm


Bush budget forecasts optimistic

NEW YORK (CNN/Money) - The White House budget proposal released this week makes some assumptions about the economy and interest rates that could be overly optimistic -- especially if the economy stays stuck in the mud much longer.

The White House Office of Management and Budget said it based its budget outlook for 2003-2008 on the assumption the U.S. economy would grow 2.9 percent in 2003 and average 3.3 percent growth between 2003 and 2008.

While few economists seemed inclined to quibble with the 2003-08 estimate -- which practically matches the 3.2 percent rate assumed by the Congressional Budget Office and by the private economists polled by Aspen Publishers in its closely watched Blue Chip Consensus Forecast -- some said the outlook for 2003 is fraught with uncertainty.

"A lot of things have to go right even to get 2.3 percent growth for the year," said Lehman Brothers chief economist Ethan Harris, citing his own firm's forecasts. "I would be very surprised if we got numbers as strong" as the White House expects in 2003.

While one year's economic growth might not seem like a big deal, the White House said that, because of the way it crafts its budget estimates, one year's performance could have budget repercussions until 2008 and beyond.

For example, if GDP grows just 1.9 percent in 2003 instead of the expected 2.9 percent and the unemployment rate averages 6.2 percent in 2003 instead of the 5.7 percent the White House expects, the budget deficit would be $172.5 billion higher between 2003-08 than the $1.39 trillion the White House expects.

Most economists doubt the economy will be that weak or unemployment that high in 2003, however.


(much more in the article about various scenarios)

Yeah, Republicans are the financially responsible bunch. What ever happened to the 1994 Contract With America where Republicans absolutely believed in a constitutional amendment for a balanced budget?

Better yet, these projections don't even include the cost of war with Iraq.

So, is Bush financially irresponsible or does he believe its a good idea to pass on a growing debt and growing interest payments to future generations?

 

So Major, how do you propose to balance the budget? Do you want to cut all that AIDS spending that Bush just announced? I'm eager to hear your plans and see your economic analysis.

Well, I wouldn't have proposed $2.2 trillion or so ($1.6T in the original cut; $0.6T in this cut) in tax cuts for starters... That right there would have balanced the budget, even providing for about a $500 billion leeway for short-term limited cuts (like refunds or job incentives) or targeted boosts to get the economy going along with $300B for debt repayment. That would have also freed $1.69 trillion ($1.39T from no deficit spending; $300b from debt repayment) in capital for business investment that is now going to be tied up in treasury investments.

There was a reason many of us said the tax cuts were irresponsible, and here it is in action. All of Bush's arguments about supply side economics generating more tax revenues to cover the shortfalls, etc are being proven wrong here. All this is is a short-term popularity boost for an administration in exchange for building a long-term debt burden.

 

Is that just next-year's worth of tax cuts? I thought the tax cuts were across many years, no?

I believe it was over 8 years - maybe 10 - which is the period of these deficits more-or-less. Actually, the deficits are only 6 years worth, but if you add the 2001-2002 years, you get up to 8 years and the total net deficit is even bigger.

We're going to have $1.4 trillion in new debt over the next 6 years; the tax cuts are $2.2 trillion over either 8 or 10 years, starting from 2001.

If it was an issue of cheap capital, the aggressive monetary policy would have been sufficient. But until you have demand, you don't need to worry about business investment (one columnist stated: 'The trouble with all this macho money-creation is that you can lead a horse to water but you can't make him drink. Something must be done to spur demand')


I agree that spurring demand is the core, but this would basically be in addition to $500 billion that we freed up for the government to spur short-term demand (tax rebates for the masses, etc).

Supply-side may or may not be wrong, but Federal Budget projections certainly don't disprove the theory.


Agreed, but the argument that people often use to justify that its OK to deficit spend during recessions is that we'll cover that shortfall during expansions and it all balances out. For one, it doesn't because of our government's propensity to spend. However, this shows that it doesn't work even ignoring that part of it. I probably shouldn't have mentioned supply-side in the original post though - that's a bit of a separate issue, although they are often linked in the argument (ie, tax cuts for business will spur the economy and create more new revenues).

I find econimics fascinating, but it is was one the least successful disciplines. Maybe it has the most challenges; I guess meterologists don't have to worry about irrational storms and tulip crazes.

Yeah -- economics (macro, especially) is still a developing field. There's not enough historical data to really develop substantive patterns and the like. Whether we'll ever be able to account for all the variables is a huge questionmark.