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Red Ink

Each month the Congressional Budget Office (CBO) releases its Monthly Budget Review (MBR), which summarizes its expectations of the receipts and outlays in the federal budget for that month. (The actual totals are later released by the Treasury in the Monthly Treasury Statement.) Yesterday, CBO issued the MBR for August, which contained a bonus: 11 months into the fiscal year, CBO released its first estimate of the full-year deficit for 2023.

And the magic number is…$1.5 trillion. That’s right, $1,523 billion, up from $946 billion in fiscal 2022. (See Figure 1, reproduced from the MBR, below.)

There is simply no merit to running such enormous red ink – over 5.5 percent of gross domestic product – from any number of perspectives:

Short-run fiscal policy. The most straightforward metric of Keynesian stimulus is the change in the full-employment surplus. Increases in the surplus are contractionary, while increases in the deficit are expansionary. Full employment measures are used to isolate the impact of policy choices, as opposed to changes in the deficit/surplus caused by the economy. The United States is most definitely in the vicinity of full employment, and the deficit rose by over $500 billion. Expansionary fiscal policy is contrary to the tight financial conditions that the Fed is using to pull back on overall demand. This year’s policy is a piker compared to the error known as the American Rescue Plan, but reveals that the administration is not even trying. Thanks, Bidenomics!

Long-run fiscal policy. Sustained high deficits in a full-employment economy crowd out private-sector investments in technologies, business models, labor skills, equipment, and other sources of higher productivity. They sap the strength of the growth in real wages and the standard of living. They are at odds with claims that the administration’s policies will build a strong foundation for future growth. They are the termites in the basement threatening a real crisis in the years to come. Thanks, Bidenomics!

Politics. The American public wants a federal budget that adds up. Its instincts are to be afraid of uncontrolled red ink, which is precisely why the president has gone to such great pains to claim he is the greatest deficit-reducer in history (the source of a one-and-only “bottomless Pinnochio” from the otherwise-friendly Washington Post). The president is on track for fiscal and political problems because of his handling of the deficit. Thanks, Bidenomics?

It just might be time for the president to get serious about the budget. His current strategy is bad for Americans today and tomorrow – and as public sentiment demonstrates, for the president, himself.


Fact of the Day

Across all rulemakings this past week, agencies published $49.5 billion in total costs and added 4.4 million annual paperwork burden hours.

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