Good news: the federal budget deficit has entered a period of rapid decline as the economy slowly recovers, the cost of overseas wars falls, and the sequester bites. For 2013, we’re looking at a projected deficit of $759 billion, or 4.7 percent of GDP. The FT:
Throughout Barack Obama’s first term in office, the recession and the stimulus that was enacted to combat the crisis pushed annual deficits above $1tn each year, reaching a peak above 10 per cent of GDP. But under his own policy prescriptions, Mr Obama sees budget deficits gradually shrinking over the next decade, to 2.1 per cent of GDP in 2023.
We’re happy to see this, but we have never thought that the short term budget deficits following the recession were the country’s big problem. It’s the unsustainable path of entitlement spending.We don’t actually think that the way to fix those long term deficits is by imposing a crippling austerity program. Above all, we face a health care problem, and putting the health care system on the road to real reform would go a long way to helping. Unfortunately, it’s at the level of long-term fiscal problems and effective health care reform that this administration has missed the boat, so the long-term outlook remains problematic.But in the meantime, we’ll take good budget news where we can get it.