Why No One Is Celebrating The Much-Lower Deficit

Apr 15 2014, 6:20pm CDT | by

The basics are straightforward and unambiguous: The Congressional Budget Office yesterday reported that the federal budget deficit will fall to 2.8 percent of GDP this year, almost one-third below what it was in 2013.

As a percent of GDP, not only will that be the lowest deficit since 2007, the drop from 9.8 percent in 2009 to 2.8 percent in 2014 is the largest five-year reduction in federal red ink since the end of World War 2, that is, in almost 70 years.

There was no celebration.

The president didn’t appear in the White House Rose Garden to make a statement.

There were no dueling press conferences on Capital Hill to claim credit for the improvement.

And the deficit hawk groups didn’t send letters to their funders saying that this was a monumental accomplishment for which they have worked tirelessly.

In fact, just the opposite occurred. The White House, House and Senate were silent while the deficit hawks focused instead on CBO’s almost certainly inaccurate 10-year projection that showed the debt rising as a percent of GDP from 72 percent in 2013 to 78 percent in 2024.

Why no dancing in the street?

This is one of the few times the real politics of the federal budget deficit are laid bare for all to see.

The White House didn’t take a victory lap for two reasons.

First, it sees the budget as a losing issue and doesn’t want to talk about even good news when it happens. Talking about a falling deficit gives the administration’s opponents the opportunity to say the president can’t take credit for reducing the deficit unless he first takes the blame for raising it so high. Even though much of the deficit increase was already baked into the budget baseline when Obama took office and wasn’t completely his fault, that’s hard to explain and the criticism will hurt.

Second, talking about a falling deficit means you still have to talk about a deficit that to some will seem too high no matter how much it has fallen. It’s the political rather than the economic arguments that are important in Washington, and the current politics of the budget mean that even a $1 deficit would be mischaracterized by some as being evil. Because of that, CBO’s projection of a nominal $492 billion 2014 deficit looks — and can be made to sound — positively catastrophic even when it’s not.

Congress didn’t gloat about the falling deficit because neither house has a good story to tell about what it did during the time the deficit was falling. The House was busy passing hyperpartisan budgets that had no chance of being adopted by the Senate. The Senate either wasn’t passing budgets or was passing budgets the House refused to consider. Neither situation earns you many plaudits.

There was also the fiscal cliff and the shutdown. That’s ancient history but still politically painful.

The deficit hawk groups? They will have no reason to exist or be funded if the deficit is understood to be falling. It’s not at all surprising, therefore, that they focused on the longer term even though the projected increase in the debt as a percent of GDP is barely important economically and a 10-year forecast is basically just a straight line extrapolation. Doing that simply justifies staying in business.

The only real surprise from what happened yesterday is that the Congressional Budget Office wasn’t demonized for its new numbers. In the current environment that lack of criticism is the closest we’re going to anyone saying anything positive.

 
 

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