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Holly Bailey

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Posted Tuesday, November 03, 2009 12:30 PM

Orszag: Forget About Balancing the Budget

Robert J. Samuelson
Does the Obama administration ever plan to balance the budget? Apparently not. In a speech at New York University, Peter Orszag, head of the Office of Management and Budget, suggested that the administration’s goal was to reduce the deficit to a “fiscally sustainable level,” which he said is “roughly 3 percent” of gross domestic product (GDP). That would be much lower than the deficit of $1.4 trillion for fiscal 2009, which ended in September and totaled $1.4 trillion. But it would still be a lot of money, about $420 billion annually in today’s dollars.

The idea behind keeping the deficit to a “fiscally sustainable level” is to stabilize the outstanding federal debt as a share of GDP. In 2008, the federal debt held by the public was $5.8 trillion, or 41 percent of GDP. When the Congressional Budget Office estimated the prospective Obama budgets in June, it projected that there would be continuous deficits for the next decade and that by 2019 the federal debt would reach $17.1 trillion, about 82 percent of estimated GDP. Other estimates have put the debt-to-GDP ratio even higher. The annual deficits during this decade would average more than 5 percent of GDP, the CBO said. (The federal debt represents all the money borrowed to cover annual deficits.) In his speech, Orszag conceded that present deficit projections are “well above” fiscally sustainable levels. Orszag didn’t say when the administration would start curbing the deficits, except to indicate that the process might start once the economic recovery seemed well established. At that point, large deficits—rather than stimulating the economy—might do the opposite, he said. With private borrowing depressed by the deep recession, today’s huge deficits haven’t pushed up interest rates, but when the economy revives “the federal government’s borrowing...will be competing more directly with private-sector borrowers” and might increase interest rates. Similarly, Orszag gave no hint of how the administration might close future deficits—whether through spending cuts or tax increases and of what type. Nor did he explain why keeping the deficits to “fiscally sustainable” levels was superior to balancing the budget, though it would certainly be easier politically.

Finally, it not clear whether Orszag’s goal of deficit reduction would actually be adequate to stabilize the debt-to-GDP ratio. To do that, the economy would have to grow at 3 percent or more a year in the future—possible, but not guaranteed—and the debt-to-GDP ratio would have to decline in some years, because future recessions and emergencies almost inevitably bloat deficits and require more borrowing.
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Posted By: Davole (November 4, 2009 at 8:09 PM)

Apolitical -

It's obvious that you do not know the difference between a Republican and a Conservative. If liberal talking points which are spoon-fed to you are your only source of information, then you will never know the answer.

And I doubt that you would ever be qualified to lecture me regarding basic economics. I have studied economics, and become quite proficient in that discipline.

Keynesian theory is merely one school of economics, actually a primitive one, and it is widely disputed by many competent economists. The government can only creates jobs and prosperity for its own public sector, which basically produces red tape and paperwork.

Primarily small, but also large business are the major sources for the multitude of jobs which produce goods and services, thereby rejuvenating the national economy. And the greatest stimulus to prime start the economy is tax reduction. But that policy is anathema to the obamabo(ugh)t administration which is hell-bent on redistributing wealth, instead of stimulating the economy.

You naively avoid the realization that the economy was quite sound for the first 6 years of George W. Bush's 2 terms, and the unemployment rate was close to 5%. But as soon as the democrats gained control of the House and Senate, the economy began to nosedive. They enabled and connived to maximize a crisis, so that they could take advantage of that situation.

And I disagree with part of your claim that "deficit is inevitable and acceptable."  Yes, the Obama administration's sinister meddling in the economy inevitably skyrockets the deficit. But that grossly bloated deficit is only acceptable to the non-productive sector of society which exists on government handouts, and it is mainly democrats who have that reliance, because they comprise a major portion of the population which does not pay federal income tax.  

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Posted By: Apolitical (November 4, 2009 at 12:45 PM)

Davole,

What's the difference between a Republican and a Conservative?  Let me answer it for you.  A conservative is someone who can't admit to themselves the loss and incompetence of past Republican administrations.  Hoover, Nixon and Bush's comes to mind.

And let me educate you on basic economics.  Bush left Obama with the Great Recession where the Keynesian prescription is government spending to pump-prime the economy.  And in this case, deficit is inevitable and acceptable.  And similar to model of economic performance under Clinton, when the economy recovers, the government mops up the excess liquidity in the system due higher interest thereby rewarding savers and cutting deficits through revenue generation, debt paydown and reign on government spending.

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Posted By: Davole (November 4, 2009 at 12:15 AM)

gvillagran3, and even 1, 2, 4, 5 & 6 -

To clear the putrid democrat air which pervades this site, I am not a Republican - I am a Conservative!

It's pathetic that you try to console other obamabo(ugh)ts by informing them that America is not as low as other countries in the relationship between higher debt in relationship to GDP. Yes, coming from a democrat, I can understand your ridiculous attempt to placate the ignorant democrat masses in that or any other regard.

But I do appreciate your candor in admitting that America is destined, under the incompetent fumbling of el presidente Barack Obama, to degenerate into becoming a banana republic.

I, and many other observant individuals, do realize that Barack Obama is amassing a national deficit which eclipses the total deficits accumulated by all US presidents previously. Now, that is the empty suit's only pathetically realized accomplishment.

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