Three Ways to Look at the Budget Review
There are three possible ledes you could write on the mid-session budget review (pdf).
The first is that the 2009 deficit will be lower than expected because the financial crisis has, effectively, ended. Projections were for the deficit to reach $1.84 trillion (12.9 percent of GDP). Instead, it will be $1.58 trillion (11.2 percent of GDP). This is almost entirely due to stabilization in the financial sector, which has allowed the administration to erase the reserve for further financial sector interventions or FDIC payouts. That's a happy headline.
The second is that the long-term deficit is $2 trillion larger than anticipated. There are two reasons for this: First, the recession is worse than it originally appeared, and recovery is likely to be slower than originally hoped. In January 2009, for instance, the early estimates held that the economy had shrunk by 0.5 percent in the third quarter of 2008. Now we know it actually shrunk by 2.7 percent. Second, the severity of the recession has meant that the programs that kick in to deal with recessions — unemployment insurance, food stamps, Medicaid and so forth — will be more expensive than predicted. That's not a bad thing: The programs will cost more because they will help more people who need help. The bad thing is that more people will need help than we originally thought.
The third headline, and one that I'm seeing around, is that the stimulus will cost "tens of billions" more than originally anticipated. This is part of the story outlined in the previous paragraph: More people need help, and so policies like the extension of COBRA, which lets people keep their health insurance if they lose their job, have been used by more people. This is not a bad thing. Insofar as more people need help to keep their health insurance during the recession, we want them to get that help.
The overarching headline, though, is that there are few surprises here. To get a bit Rumsfeldian, the increase in the long-term deficit is the product of a known-known: The recession has proven worse than the original projections, which in turn means that tax revenues will be lower and social supports will cost more. The one real surprise is that the White House is sufficiently confident in the financial sector to draw down those emergency reserves. That's evidence of a real policy success on that score.
August 25, 2009; 11:33 AM ET
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