A New Era of Fiscal Irresponsibility

As Harvard Professor Gregory Mankiw describes, the Office of Management and Budget website introduces the 2011 budget as “A New Era of Responsibility.” Looking at the budget though, you have to wonder if this “new era” type of responsibility has anything at all to do with the traditional variety.

In a departure from most previous US budgets, the 2011 version has no hope of balancing, ever. Despite the projected end of government spending on wars, bailouts, and stimulus, and the projected improvement in government revenue after being choked off by financial crisis, the deficits still continue to grow.

From the New York Times:

“The troubling feature of Mr. Obama’s budget is that it fails to return the federal government to manageable budget deficits, even as the wars wind down and the economy recovers from the recession. According to the administration’s own numbers, the budget deficit under the president’s proposed policies will never fall below 3.6 percent of G.D.P. By 2020, the end of the planning horizon, it will be 4.2 percent and rising.

“As a result, the government’s debts will grow faster than the economy. The administration projects that the debt-to-G.D.P. ratio will rise in each of the next 10 years. By 2020, the government’s debts will equal 77.2 percent of G.D.P. This level of indebtedness has not been seen since 1950, in the aftermath of the borrowing to finance World War II.

“Making matters worse, these bleak budget projections are based on relatively optimistic economic assumptions. The administration forecasts economic growth of 3.0 percent from the fourth quarter of 2009 to the fourth quarter of 2010, followed by 4.3 percent the next year. By contrast, the Congressional Budget Office predicts growth of 2.1 percent and 2.4 percent for these two years.”

When you make “optimistic economic assumptions” and can still only end up with “bleak budget projections,” it’s a fairly clear sign of trouble ahead. So, with this budgetary plan in place, we enter into a new era of fiscal irresponsibility.

Read more of Mankiw’s perspective on why the budget is not sustainable in the New York Times.