Kudos to the Financial Times Editorial Board, Which Gets the Obama Budget Right
The FT, the world's best newspaper:
FT.com / Comment / Editorial - Budget distractions: The Obama administration’s 2011 budget... the mood is more siege mentality... deficit dread sweeps the country and hence Washington, the focus is on short-term medication of the deficit rather than two altogether more important tasks – strengthening the recovery and securing lasting fiscal health... reckless politicians have persuaded voters that runaway deficits threaten their livelihoods more than a renewed slowdown. This makes the administration sound a bit like a small European country eager to reassure Brussels: it wants to cut the deficit to 4 per cent of GDP within three years.
Such a large swing is fine if growth proves robust, but dangerous if it does not, which is far from unlikely. Unemployment is likely to stay above 9 per cent into 2011....
Deficit-reduction noises may be no more than that: what matters politically is to be seen to care about the deficit but not do anything painful to shrink it. Besides, the US can afford a few more large deficits: net public debt, now just over half of GDP, is manageable. In the fine tradition of US budgets, however, the real fiscal threats are left unaddressed: untamed growth in health spending; demographic pressures on social security; and waste and lack of control over military spending, a sacred cow comfortably nestled in every congressional district. A proposed three-year spending freeze signally fails to apply to any of these....
Obama must push harder: that structural fiscal problems are not of his making does not make them any less of his responsibility.
Let me highlight: "Such a large swing [in the deficit] is fine if growth proves robust, but dangerous if it does not, which is far from unlikely. Unemployment is likely to stay above 9 per cent into 2011..." By my back-of-the-envelope calculations, the administration is--relative to current spending and tax levels--loading 3 percentage points' worth of contraction into fiscal 2011.
That's OK if the fiscal 2011 growth rate would otherwise be 9%--then we have 6% growth and the unemployment rate falls by two percentage points.
That's not OK if the fiscal 2011 growth rate would otherwise be 3%--then we have 0% growth, and the unemployment rate rises by one and a half percentage points.
The otherwise-growth rate for fiscal 2011 is as likely to be 3% as it is to be 9%.
I am frightened...
