PrintFebruary 27, 2009
Obama's Busted Budget
I wrote recently of the real state of the federal budget. In that article, I projected a "rosy scenario" budget. Now President Obama has proposed a budget of his own, which he titles, without irony, "A New Era of Responsibility". Want to compare them?
Hoven | Obama | |
Spending 2012 | 20.4 | 22.2 |
Deficit 2012 | 2.1 | 3.5 |
Debt 2012 | 55.8 | 66.7 |
Spending 2016 | 21.9 | 22.4 |
Deficit 2016 | 3.6 | 3.2 |
Debt 2016 | 67.9 | 66.3 |
(All figures are given as percent of GDP. "Debt" is the federal debt held by the public. The source for Obama's budget numbers was Table S-1 of his budget.)
As you can see, President Obama's budget is less rosy than my rosy scenario throughout his first term. By the end of his second term, we are close.
When do deficits go below 3% of GDP in President Obama's projections? Basically, never. Two years after his second term would end, in 2018, he projects them at 2.9%. But then they go back up to 3.1% in 2019, the last year of his projections.
Folks, 3% of GDP is considered high for a deficit. The European Union sanctions it members if their deficits exceed that level. Obama can't even see his way to that low by 2019, much less a balanced budget.
And how does he expect them to come down even that much? By assuming that by 2012, the last year of his first term, revenues will exceed the average of the previous 25 years (indeed, the last 50 years) for every year from then on. In short, he assumes unprecedented revenues to start flowing in, year after year, from 2012 onward. He also assumes unspecified savings in those years way past his first term.
Concerning the short term, where numbers are more solid, don't even look at his budget if you are at all squeamish. He puts the deficit at 12.3% of GDP in 2009. Throughout the Great Depression, whether under Hoover or FDR, the deficit never exceeded 6% of GDP. Under Reagan, with his inherited recession and his tax cuts, it never exceeded 6% of GDP. Under George W. Bush, with his inherited recession and his tax cuts, it never even got to 4% of GDP.
In fact, in only five years since 1930 has the deficit exceeded 6% of GDP: 1942-46. It has exceeded Obama's 12.3% only from 1942 to 1945. That was World War II. Then, defense spending was about 40% of GDP. Now it is about 4%.
President Obama projects debt held by the public at 59% of GDP in 2009, and about 65% of GDP thereafter, as far as his projections go.
You have to go back to Truman to see debts that high. And Truman was paying off World War II costs. It's been below 50% of GDP since 1957. For the first time since then, it will exceed that level this year, going from 41% to 59% of GDP in a single year.
This is a terrible budget. In Obama's first term, it is even worse than my predictions. Into his second term and beyond, it is still bad, and held together only with rosy assumptions on both the revenue and spending sides. When things can be expected to get really bad, by 2020 and beyond, he makes no projections at all.
This is not what Obama fears; it is what he hopes. The reality will be even worse than his projections -- after Congress, the real behavior of the economy, and who-knows-what in terms of future bailouts, hurricanes, earthquakes, terrorist attacks, etc. are factored in.
Randall Hoven can be contacted at randall.hoven@gmail.com or via his web site, kulak.worldbreak.com.
