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Thursday, July 14, 2005

Supply siders win again

From this week's OMB presentation about projections of Federal Deficit:
Even as the nation devotes the substantial resources needed to fight and win the war on terror, the deficit is now forecast to fall from $412 billion, or 3.6 percent of GDP, in 2004 to $333 billion, or 2.7 percent of GDP, in 2005. At its currently forecast level, the U.S. budget deficit for 2005 would be smaller than the deficits in 15 of the last 25 years. As the chart shows, under the President's fiscal policies, the budget deficit is forecast to continue to fall, to $162 billion in 2009, or 1.1 percent of GDP, less than half the size of the average deficit over the last 40 years. This dotted line here reflects the average deficit over the last 40 years.

Here are the new projections:

Here is Director Bolten's Q&A session in HTML and in Adobe format. It is a somewhat interesting spin.

People get excited about the deficit being the "largest ever" but that is in nominal, not necessarily real terms. The economy is twice as big as it was just ten years ago, and therefore the federal budget is also twice as big. Unfortunately, the federal government can't seem to stop their spending sprees which lead to deficits - this holds for Dems and Repubs alike. However, the federal deficit as a percentage of GDP is dropping, which is good. As long as we can service the current debt load and GDP growth continues at it's historical pace, then the only thing we have to worry about is the unfunded mandates from Medicare and Social Security - they only tally to about $30 trillion or so.

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