August 27, 2009
Worse and WorserBy Randall Hoven
The Congressional Budget Office came out with an update to its predictions of the federal budget this week. For some reason, the CBO did not title its report "Hell In A Hand Basket."
It is difficult to put all these predictions into easily understandable apples-to-apples comparisons. But I will try. One thing that messes up the understanding is that the White House or Treasury comes out with predictions as well the CBO, and usually at about the same time, so that there are always multiple estimates of about the same things.
Here is my tip for getting a grip on such predictions: ignore all predictions coming from the Obama administration. To keep things simple and within an order of magnitude of the truth, stick with CBO estimates. Not that the CBO is perfect, but (a) it is more accurate than anything coming from Obama, and (b) its predictions are apples-to-apples comparable to each other.
In March, the CBO came out with a report that included predictions for two different scenarios: a "baseline" scenario and an "Obama budget" scenario. It also updated that report in June. In August, the CBO updated only one of those predictions, its "baseline" one. (Format note: the embedded links here are directly to pdf versions of the CBO reports. In the first two reports, look for Table 1-1. In the August report, look for Table 1.)
The CBO's "baseline" is an estimate of what will happen if Congress does nothing new and just lets existing law continue. If tax breaks expire, Congress lets them expire, etc. The CBO also assumes discretionary spending will go up merely at the pace of inflation. The "baseline" is not quite what Bush left for Obama, since it includes legislation passed already, such as the $787 B stimulus and the $410 FY 2009 reconciliation budget, both passed in 2009 under Obama.
The CBO's "Obama" estimate is based on Obama's proposals being adopted, rather than continuing with the current law. Obama's proposals are documented in his budget, originally submitted February 26 and updated May 7. This budget is not yet law; it is what Congress is considering right now. Also, this budget includes neither Obamacare nor Cap & Trade.
In order to compare all these predictions, each full of numbers and assumptions, I provide only the predictions of the cumulative deficit over 2010-2019.
"Baseline" from March report: $4.441 trillion.
"Obama budget" from March report: $9.270 trillion.
"Baseline" from June report: $4.441 trillion.
"Obama budget" from June report: $9.139 trillion.
"Baseline" from August report: $7.137 trillion.
Note a few things. First, Obama's budget would more than double the long-term deficit, from $4.4 T to about $9.2 T, when estimated apples-to-apples. Secondly, the baseline estimate has gone up $2.7 T, or 61% just between June and August. Third, we do not have such an updated estimate for Obama's budget.
If CBO would re-do its estimate for Obama's budget like it did for the baseline case, we could expect the 2010-2019 cumulative deficit to be $12 T to $15 T if Obama gets his way -- before Obamacare or Cap & Trade or anything else new.
Let's be clear here. If Congress from here out does nothing but maintain the dreaded status quo, we are on an unsustainable budget path. A path of structural deficits never going below $500 B or 3% of GDP in any year from now on. A path that leaves us with a public debt of about 67% of GDP from 2011 on, or a level not seen since Truman was paying off World War II.
That's the good news. The bad news is if Obama gets his way. If he does, essentially double everything: annual deficits more like $1 trillion or 6% of GDP every year. Debt held by the public will reach at least 80% of GDP, if not 90% or more.
You need to note something else about all this. We are talking 2010 and beyond. Obama expects our current recession to end this year. Most economists expect the same thing. Years from 2010 on are expected to be post-recession years. To be explicit, that means that even Keynesians would say fiscal stimuli are not needed in those years.
Yet we spend like crazy, non-stop, that entire time! This is not about fixing the current recession.
Critics (e.g., the Washington Post) always like to remind us of Cheney's quote, "Reagan proved deficits don't matter." I don't think Cheney meant just any deficits, but deficits of limited size and duration. Size and endurance matter.
In Reagan's eight years, 1981-88, the deficit averaged 4.2% of GDP, with the worst year being 6.0%. Under George W. Bush, 2001-2008, the deficit averaged 2.0% of GDP, with the worst year being 3.6%.
Now let's look at CBO's forecast of Obama's deficits for 2009-2016. The average deficit will be 6.3% of GDP, with a worst case of 13% and a best case of 3.9%. And these are the rosy predictions, the June predictions -- before being updated in August as the baseline scenario was.
Do you get the size and endurance differences? Obama's average will be worse than Reagan's worst single year. Obama's best will be worse than Bush's worst single year. Obama's average will, in fact, be worse than any year since 1930 except for World War II. That means unprecedented in peacetime.
What's more, the numbers under Obama never get better. The picture doesn't clear up with the end of this recession. The deficit will be 5.6% of GDP, and the public debt 82% of GDP (unprecedented in peacetime), in 2019. But again, those are the rosy numbers.
Obama's budget is now being considered by Nancy Pelosi's House and Harry Reid's Senate. Do you think the tweaks they make to Obama's budget will increase or decrease the deficit? Obama's budget did not include health care reform. The health care bill currently being considered (H.R. 3200) was estimated to add $1 trillion to the 2010-2019 cumulative deficit, per the CBO.
Things were bad in 2008. What Obama did early ($787 B stimulus, $410 B reconciliation, $350 B TARP part II) made them worse. What he put in his February budget would make them even worse. What he proposed after that budget (health care reform with a public option, cap and trade emissions legislation) would make them yet worse again.
Every single proposal from this President makes the budget outlook worse. Much worse. Unprecedented in peacetime worse. Third World basket case, debtor-nation, worse. Can we get anything from this man that is not a 1,000 page piece of legislation that costs $1 trillion and needs a new czar?
Let's grant, for the sake of argument, that Obama was handed a terrible situation. He was made captain of a ship that was leaking and close to sinking. But instead of patching the leaks, he is taking an ax to everything. He says we can't live with the status quo.
Can we please not save this country by destroying it?