The federal deficit is running lower than the administration anticipated due to higher tax revenue and lower spending on federal bank bailouts. Is this good news? The Washington Post's David Cho says the lower deficit is a "favorable number." Economist Brad DeLong says it's bad news because if unemployment is higher in 2010 than 2009, the federal government should be getting more torque behind the counter-cyclical spending levers and the deficit should be bigger.
They're both right. Higher tax revenue from unchanged tax rates suggests the recovery is gaining steam and Americans are spending and earning more. Lower TARP spending is also good news because it means a healthier financial sector and fewer tax dollars sunk into unsalvageable government bailouts that would have to be made up with higher taxes later on. But DeLong's broad point holds: it's weird to celebrate lower deficits when unemployment is stuck near 10 percent, and it's unclear why the Obama administration would want to point and brag about lower deficits while the Senate mulls over a $150 billion stimulus package that we won't be able to pay for with this year's tax receipts.
This is only the latest reminder that the way policymakers talk about the deficit is a bit schizophrenic. Obama tells us that the government should tighten its belt if families are willing to tighten theirs. Then he runs up the largest nominal deficit in history precisely because too many families have had to tighten their belts. He's reluctant to say that high deficits are bad, because in a recession, they're actually good policy. But then the administration "points out" to the Washington Post that the deficit is running hundreds of billions of dollars low (as though low deficits are inherently good news, again), just months before they want to sign another stimulus bill that will increase the deficit. If the White House has a deficit czar in charge on managing the message on the deficit, he isn't doing a very good job.