Economics

How Much Responsibility Can America Withstand?

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The Congressional Budget Office says federal deficits will total $9.3 trillion during the next decade if Congress implements President Obama's fiscal proposals. That's $4.9 trillion more than the "baseline" projection (i.e., what would happen with no changes in law or policy) and $2.3 trillion higher than the Obama administration's own estimate. According to The New York Times, Peter Orszag, Obama's budget director, attributed the discrepancy "in part to small percentages—such as divergent assumptions about the rate of economic growth—that, when applied to huge numbers, can produce eye-popping contrasts."

Yet Orszag himself has admitted that the economic assumptions embodied in the president's $3.6 trillion budget plan no longer appear plausible. "Since the time when both the Administration and the [January] CBO forecasts were completed," he wrote on the Office of Management and Budget blog at the end of February, "incoming data suggest that the economy was even weaker at the end of last year than previously understood." Today Orszag conceded "that annual deficits of 4 to 5 percent of gross domestic product, as envisioned in the office's report, are 'ultimately not sustainable.'" But he also argues that the worsening economic outlook that underlies the CBO's increasingly alarming fiscal projections is a reason to spend more, not less:

The CBO report only underscores the severity of the economic and fiscal crisis the Administration has inherited. There is need for urgent action to get our economy moving again, invest for the future, and put the nation on a sustainable fiscal path….The new CBO numbers do not change our commitment to these goals or our ability to achieve them.

The CBO's analysis is available here. The OMB's response is here. More on Obama's counterintuitive understanding of fiscal responsibility here and here