hudebnik | Deficits

So the House Republicans are thinking about possibly not driving the economy off a cliff, only a steep hill, in exchange for a promise of serious discussions in the next 6 weeks of how to reduce the U.S.'s crushing budget deficit.

It is urgent that there be a deficit-cutting deal soon, because if they hesitate by more than a year or so, there may be no deficit left to cut. As shown in these charts, the deficit for the fiscal year just ended is already down by 2/3 from when Obama took office; if that trend continues, we'll run a surplus in 2014-2015, for the first time since 2001.

A few months ago my economist friend David D. Friedman (with whom I seldom agree on political matters but who knows a lot more about economics than I ever will) pointed out a problem with the way I was adjusting for inflation in those tables. I concluded he was right and started reworking the tables. In the revised tables, which I haven't posted yet, the deficit has shrunk by not 2/3 but 78% since Obama took office, and at that rate it's entirely possible we'll run a surplus in the current fiscal year.

There are of course longer-term deficit concerns, having to do with health care and other benefits for retiring baby boomers, and these need to be addressed in a sustainable, multi-decade approach, not a crisis-of-the-month approach. Anybody who tells you we're in a debt crisis now and must cut spending (or raise taxes) drastically now or we'll turn into another Greece is either uninformed or lying.

Deficits

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