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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.

By Ezra Klein  |  August 25, 2009; 11:33 AM ET
Categories:  Budget  
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Comments

The only question is how do we dig out of this deep hole of debt. Look for gasoline prices to shoot through the roof again as the world economy and demand for oil gtow.

Ots Russua and other oil produces who are sitting pretty for the tedcovery.

Until we do something about our oil and othet glittony and lack if industrial production, this drought and recessuin will continue to cdycle, ynless we just keeo the oarty going by bottowing some more from China,

Let the good times roll on our debt to China,

The American Way.We'te in a box and better realize it.
But we don't care. Everything for everybody, with a wprthless consumer economy.

Shop till we drop. Known as 'recovery'

Posted by: KRittenmyer | August 25, 2009 12:04 PM | Report abuse

Yes, Tim Geithner succeeded in reducing further bank bailouts and that is a singular success of this White House. (Again it was an adroit Media management is a different story - at the right time to talk about 'green shoots'...) But to pivot everything on that and to ignore glaring failures in between is not right. If White House wants kudos for containing Bank Bailout needs, it needs to accept brick brats for under estimating unemployment rate and severity of recession in the first place; especially when so many respected economists were questioning those assumptions. White House derided those critics and simply ignored them in the glow of 'inauguration' and feisty speech in Congress.

Stimulus costing more may be 'good' as Ezra says. But that is the precise reason vast swath of Americans are resisting any Public Option. People fear same will happen for any further Government involvement in Health Care - it will cost more than current projections.

Look, why did White House save GM? For employment and impact to American Economy. Why did Fannie Mae and Fredi Mac were rescued? Again to save economy and reduce adverse impact on American people. So when Public Plan is expected to under write insurance of over 10 million at least at some time in future; do you think American Government can ever go away from the responsibility of writing further and further checks? No chance.

So Ezra if you intended to 'read' any good story in this mid year budget review, there is none. It simply proves the point of Obama detractors - Federal Government is never able to control expenses and will never adhere to it's own projected numbers. And then still this White House expects Americans to believe them? Unbelievable.

Posted by: umesh409 | August 25, 2009 12:10 PM | Report abuse

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.

----------------------------------------


I've actually seen many people that can't afford the COBRA provision of ARRA. The reason? Because by the time the systems are put in place from the DOL setting up the regs to departments of insurance regulating the process to billing from insurers, to approval from COBRA administrators, to Dept of Labor confirmation if required it could and has taken 2-4 months or more to get in place and people haven't saved the 35% for each month so they're getting hit with a one time shot of 35% times 2, 3, or 4 and can't afford it. What they should have allowed is for the COBRA to start with a lapse in coverage but not subject them to pre-ex if they had a lapse.

They did it in some instances and not in others. Typical when you try to rush a bill through without too much forethought but again we were at a time when emergency measures were needed so i can't blame them too much.

Posted by: visionbrkr | August 25, 2009 12:56 PM | Report abuse

"The one real surprise is that the White House is sufficiently confident in the financial sector to draw down those emergency reserves."

Why is that a surprise? Optimism always befogs issues: by forwarding the cost to a future generation, the White House avoids dealing with the unpleasant matters of containing costs and rebuilding the economy.

The last paragraph offered by umesh409 @ 12:10 PM is on target: the majority of the public has simply ceased to believe the incredible messages from the White House.

Posted by: rmgregory | August 25, 2009 1:08 PM | Report abuse

As long as we don't tax the rich at the horrible rates under Clinton, nothing else matters.

Posted by: AZProgressive | August 25, 2009 1:17 PM | Report abuse

Umesh, you seem to conveniently forget that Clinton came in, took Reagan/Bush's record deficits, and turned them into record surpluses. Then Bush II turned those into record deficits while destroying the economy of the country. Yet you morons just scream, "guvmunt bad!"

Posted by: AZProgressive | August 25, 2009 1:29 PM | Report abuse

The first point was that, as usual, the economic projections about this year's deficit were wrong. Then we are given a whole new collection of economic projections even further in the future.

Why in God's name should we believe any of this wild speculation?

Posted by: lensch | August 25, 2009 2:00 PM | Report abuse

AZProgressive - Clinton did it because of the investment banker scam called 'Dot Com Boom' and those IPOs from Silicon Valley. Don't tell me how that happened, I have experienced firsthand which you are very unlikely to know about. And of course, like many others rode down when that boom burst.

Are you believing any such boom is on the way and still Larry Summers and Obama are being modest in not claiming that? Go on AZProgressive, try your magic on some others but not on me.

I talk with my wallet here - have been contributing to Obama Campaign and still do it today. But that does not mean we will take any 'crap' from this White House.

We want this White House to be honest and as things stand, every day this White House is getting engulfed more and more in lies. Shouting on those asking these tough questions is hardly going to change the situation.

Posted by: umesh409 | August 25, 2009 4:50 PM | Report abuse

I think the $23 trillion dollar deficit in 2019 is the real silver lining :-)

If interest rates would go to 10% which is not unrealistic ... that would be an interest payment of $2.3 trillion a year ... that's hard for me to comprehend.

But I like Ezra's optimism maybe it comes with youth.

Posted by: cautious | August 26, 2009 3:28 AM | Report abuse

oops $23 trillion dollar debt ... sorry

Posted by: cautious | August 26, 2009 3:30 AM | Report abuse

" 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."

Or is it evidence that the consumer that was spending borrowed housing bubble dollars is the root cause of the recession, not the banking system- and thus dollars were misplaced.

Posted by: staticvars | August 26, 2009 9:47 AM | Report abuse

You're right Ezra, NONE of this is a "bad thing". The fact that we can spend money we dont have at increasingly unprecedented rates on people who "need help" is some way or another is a great testament to our moral superiority over reality.

Posted by: dummypants | August 26, 2009 10:17 AM | Report abuse

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