The U.S. will face a $9 trillion budget deficit over the next decade, according to a new White House estimate, the largest deficit since World War II as a percentage of national economic output. However, the Obama administration said this year's deficit will be about $261 billion lower than anticipated because it won't spend as much on bank rescues. How bad is the budget shortfall and the national debt? Who is proven right on economic policy, the administration or its critics? What will the political impact be?
- Some Good News Ezra Klein grasped onto the downward revised estimate of this year's deficit as evidence of a "real policy success" on fixing the financial sector so that no more bailout money was given. Even though the stimulus package is costing more than expected because of the extension of unemployment benefits and COBRA subsidies, 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."
- Second Stimulus Needed The extra $2 trillion in deficit over the next 10 years is the result of more pessimistic estimates of economic growth and unemployment rates, not extra spending since the $7 trillion estimate several months ago. "The rational response to the news that the economy will be far worse than had previously been projected should be a demand for more stimulus," said TalkingPointsMemo's Dean Baker. Large deficits are needed to return to full employment, otherwise the unemployed and their children will bear enormous financial costs.
- Give Obama Credit Reuters' Rolfe Winkler credited President Obama for releasing the updated deficit projections at a time when he's trying to sell an expensive health care plan and giving his critics ammunition in the form of deficit numbers. Marc Ambinder said the White House deserves credit for honesty because it brought its deficit projections in line with the originally "harder, more conservative projections" of the Congressional Budget Office. The American Prospect's Tim Fernholz wrote, "The president said he would cut the deficit in half by 2012, and according to both CBO and OMB, he will."
- Deficit Could Destroy Us Right-wing observers said the deficit and debt have negative effects. "It will destroy the dollar," said Charles Krauthammer on Fox News's Special Report. "The only way that kind of debt is paid off is not in taxes. It is in inflation. And everyone will see it coming. It will raise interest rates" and "destroy the economy." Arnold Kling was less pessimistic, but said tax hikes are very likely, followed by cuts to Medicare and Social Security. Kling thought there were remote possibilities that the U.S. would muddle through, default on debit payments, or suffer hyperinflation.