Government deficit set to balloon: Why shouldn’t we worry?
The budget deficit is already estimated to reach $1 trillion (yes, $1,000,000,000,000) in 2009, and that doesn’t include the $300 billion, no $500 billion, no $1 trillion stimulus plan. When is it okay to worry?
If the only new federal outlays were in relation to the second ECONOMIC stimulus package, then I wouldn’t be as worried. However, the U.S. government has already funneled $1.06 trillion into stemming the credit crisis, leaving little wiggle room for Obama’s latest $1 trillion stimulus package. Time to worry.
There is some debate over how quick and what type should be the stimulus package. Within one publication of the Economist, there are inconsistencies.
From the Economist on December 11, 2008:
The table lists the current and maximum funding allocated by the fiscal sector to shore up the financial system. The government has already spent $1.06 trillion on the financial crisis, but allocated up to $3.67 trillion. And with the Citigroup allocation not even tapped and the TARP funding most likely to be spent with Congress’ blessing, the outlays could very well approach the $3.67 trillion.
To be sure, the fiscal outlays for the financial crisis are different from those associated with the stimulus plan, as many of the listed outlays are in the form of a loan, and (hopefully) will eventually be paid back. But they are still outloays. And the Obama stimulus plan gains traction with each week that passes: On October 15, Democratic leaders said $300 billion. On December 1, Pelosi says $500 billion. On December 13, Obama’s team implies that $600 billion is a LOWER BOUND; the price tag will be upwards of $1 trillion.
Who knows, next week it may be $1.5 trillion. It worries me that Congress is working in crisis mode and not thinking clearly. Obama expects to spend $600 billion in the first year – that’s a $1.6 trillion deficit in 2009 – without the rest of TARP funding, the Citigroup bailout and any other allocated funding – or roughly 11% of GDP.
Sure, economists and policymakers can tout that debt accrual should not be a worry, but I completely disagree. More is not necessarily better. Just one month ago, Paul Krugman called a $600 billion stimulus package “huge”! What has changed since then?
As soon as the government becomes comfortable with $700 billion, they up the ante another $200 billion. More gets you through the next year, but what about in 10 years?
Originally published at the News N Economics blog and reproduced here with the author’s permission.