Sanity Injection

Injecting a dose of sanity into your day’s news and current events.

The federal budget deficit: Let the disinformation begin

Posted by sanityinjection on July 29, 2008

The White House Office of Management and Budget released some new numbers yesterday regarding the federal budget deficit. (In simple terms, the deficit is how much more we are spending than the revenue we take in.) The big news in this announcement was that for 2009, the deficit is projected to be at $482 billion, a record amount.

Mainstream media outlets were quick to pounce on this information and spin it as “Bush Administration Announces Record Budget Deficit.” You can expect to hear the phrase “record budget deficit” over and over in the next three months as part of the election campaign.

However, let’s look at what this “record” actually means. It’s true that in real dollars, the deficit has never been so high. But that’s essentially meaningless because the Gross Domestic Product (GDP) has also never been so high, and federal revenue collections have never been so high. In order to evaluate the deficit in a meaningful way, we can’t look at the dollar figure. We have to look at the size of the deficit as a percentage of GDP. Looked at this way, the $482 billion figure represents 3.3% of GDP. This is far from a record. In fact, it’s less than 2004 (3.6% of GDP) and far less than the record deficits of the 1980s (6% in 1983.) To their credit, some media outlets such as the LA Times do mention this in their reporting, although it usually comes across as an afterthought.

This chart, prepared by the Congressional Budget Office, shows the change in the deficit as a percentage of GDP over time. (The chart is used by both the liberal Brookings and the conservative Heritage Institutes, which is a pretty good sign that it’s relaible.)

http://www.heritage.org/Research/Budget/upload/PosterDeficit.pdf

As you can see, except for a spike in 2003 when the Iraq war began, we have been well within normal range for the past three years and are on track for surpluses in the next decade. The long term outlook 20+ years from now, however, is bleak because at current rates of spending, entitlement programs such as Social Security and Medicare will balloon out of control.

My point is not to suggest that we shouldn’t be concerned about the budget deficit. We can and should take steps to reduce it. However, it is not unreasonable to run a deficit when you’re fighting two wars and haven’t been able to rein in domestic spending. In the meantime, don’t buy into the hype that the sky is falling. Next time you hear someone mention the “record deficit”, don’t let that statement go unchallenged. We can have different opinions over federal spending and revenue policies, but spreading misinformation is not helpful to a principled public debate.

OMB announcement:

http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20080728%5CACQRTT200807281649RTTRADERUSEQUITY_1065.htm&selected=9999&selecteddisplaysymbol=9999&mypage=newsheadlines&title=Federal%20Budget%20Deficit%20Forecast%20To%20Reach%20A%20Record%20482%20Billion

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: