The deficit might not be as bad as all that

ARTICLE: It's Hard to Worry About a Deficit 10 Years Out, By FLOYD NORRIS, New York Times, August 27, 2009

And another county heard from on the deficit:

Ten years ago, Washington was worried about the budget outlook, and there were forecasts of dire outcomes. And so it is today.

The difference is the nature of the worries. Alan Greenspan, then the Federal Reserve chairman, talked about the dangers of a shortage of Treasury securities as the $5 trillion surplus forecast for the next decade enabled the national debt to be paid down. This week we were warned of a $9 trillion deficit over the next 10 years.

"The last time people got really excited about a 10-year budget outlook, they were hysterically wrong about what transpired," said Robert Barbera, the chief economist of ITG, who mocked the surplus forecasts then and now thinks the consensus outlook is too negative.

"The $5 trillion surplus was a 'nothing can go wrong' forecast," he said. "No recessions, no wars, no bear markets and a perpetuation of inexplicably high tax receipts. You can make the case that the current conversations about our fiscal outlook are effectively, 'Nothing can go right.' The estimates assume we continue to allocate over $100 billion a year for fighting wars. They assume a very mild recovery for the economy, and an even milder recovery for tax receipts."

Reason I cite: I remember that discussion a decade ago and I remember it quite vividly.

Comments

[Matt Osborne]

To most people, "deficit" is a scary thing they don't understand.

[large]

Economics predictions should be viewed with the same certainity that long term weather forecasts are . . there are far too many affecting factors, most completely unpredictable by even the greatest of experts, to predict what the actual state, federal or world economy will look like in 10 years or more . .

God won't even venture a guess, I'm betting . . There's too many people stirring the pot . .

[Steven J.]

Greenspan spent nearly a whole chapter discussing this and the problems associated w/ a federal surplus in his book 'The Age of Turbulance'. Must of seemed like the right thing to worry about at the time.

My sense is that Barbera has it right.

The "Bail Out" of $700 billion is for asset purchases to save the credit function and the tax payer will come out whole w/ interest on this one.

The "Stimulus" of $850 billion is 1/3 tax cuts, 1/3 relief, 1/3 investment.

Not exactly "all rat hole spending".

[Javaid Akhtar]

If there is a concensus about a long range forcast about the economy, all sorts of financial instruments would be deployed to take advantage of this pre-knowledge and that itself would change the outcome.