The Washington Post attributes the significantly larger deficits than the Administration had originally projected to the Administration’s unrealistically rosy assumptions:
The extra $1.9 trillion in red ink mainly reflects the Office of Management and Budget’s adoption of more realistic — that is, more pessimistic — estimates of economic growth and unemployment. White House officials protest that their original, rosier numbers made sense at the time; actually, plenty of forecasters, including those at the nonpartisan Congressional Budget Office, made more accurate calls. This situation was foreseeable and should have been acknowledged earlier.
The administration has a point when it argues, as budget director Peter Orszag did yesterday, that it inherited a terrible recession as well as a number of unpaid-for programs (prescription drugs, two wars) and tax cuts from the Bush administration. Mr. Orszag noted that more than half of the $9 trillion in projected borrowing reflects the impact of past policies. Almost two-thirds of the current fiscal year’s $1.6 trillion deficit — a postwar record 11.2 percent of GDP — is attributable to the $700 billion financial sector bailout passed last October, and what has been spent so far under the $787 billion counter-recession stimulus package adopted in February. Both were unavoidable. Nor is this the time to slam fiscal policy into reverse; the economic recovery is too fragile.
If counter-cyclic spending isn’t balanced by pro-cyclic reductions or tax increases, the result is not fiscally sustainable. Tuesday inevitably comes and, after 70 years of mostly deficit spending, it looks as though we’ve awakened on Monday with a hangover.
