Paul Krugman's commentary from 2003, when the deficit was $374 billion.
It has been obvious all along, if you were willing to see it, that the administration's claims to fiscal responsibility have rested on thoroughly cooked books. [...] There's no mystery about why the administration's budget projections have borne so little resemblance to reality: realistic budget numbers would have undermined the case for tax cuts [2009: spending increases & new programs]. So budget analysts were pressured to high-ball estimates of future revenues and low-ball estimates of future expenditures ...
Furthermore, this time huge deficits have emerged [2009: increased] just a few years before the baby boomers start retiring and placing huge demands on Social Security and Medicare. ...
But haven't administration officials said they'll cut the deficit in half by 2008 [2009: 2013]? Yeah, right. I could explain in detail why that claim is nonsense, but in any case, why bother with what these people say? ...
The last defense of the budget deficit is that it helps a depressed economy — to which the answer is "yes, but." ... And yes, deficits are appropriate as a temporary measure when the economy is depressed — but these deficits aren't temporary ...
Still, do deficits matter? Some economists worry, with good reason, about their long-run effect on economic growth. But I worry most about America's fiscal credibility.
You see, a government that has a reputation for sound finance and honest budgets can get away with running temporary deficits; if it lacks such a reputation, it can't. Right now the U.S. government is running deficits bigger [2009: much, much bigger], as a share of G.D.P., than those that plunged Argentina into crisis. The reason we don't face a comparable crisis is that markets, extrapolating from our responsible past, trust us to get our house in order.
But Mr. Bush [2009: Mr. Obama] shows no inclination to deal with the budget deficit. On the contrary, his administration continues to fudge the numbers and push for ever more tax cuts [2009: spending increases & new programs]. Eventually, markets will notice. And tarnished credibility, along with a much-increased debt, is a problem that Mr. Bush [2009: Mr. Obama] will pass along to other Congresses, other presidents and other generations.
The 2009 deficit is estimated to be $1.7 trillion. So take Krugman's 2003 criticisms and multiply them by 4.5. And the long-run deficits are much, much worse, too.
Now, there are legitimate - if unproven - economic arguments that, in the absence of many monetary options, rapid and very temporary fiscal stimulus/deficit spending can be beneficial in reducing the deadweight loss of a potential output shortfall. But these are not temporary deficits.
- They are structural - even under the administration's absurdly optimistic economic assumptions, the deficits remain very large. Under the CBO's economic assumptions (pdf), they never go below $658 billion.
- They are permanent - CBO estimates the 2019 deficit at over $1 Trillion (pdf).
- They are driven by entitlements - Entitlements currently amount to about 45% of the federal budget, and that percentage increases dramatically in coming decades. Yet Obama wants to dramatically expand entitlement spending (e.g., health care).
Republicans irresponsibly ran up enormous deficits during the Bush administration. Democrats are now doubling down on the disaster. Republicans and Democrats have played a game of chicken with tax cuts and spending in recent decades. That's been a major strategic mistake. Democrats have the advantage, because the majority of long term spending is structural. When the bill comes due, taxes or inflation will rise dramatically. For everybody. At all income levels. There's simply no way around it.
"There are some things we have to do at home to get our house in order. No. 1 is we shouldn't be running up budget deficits." - Barack Obama - May 2006