May 18 2009
Why Bother Even Having a CBO?
So there’s an interesting graph on budget deficit projections:
Now even the White House projections are extremely disturbing. Under President Bush the price of gold (which is an indicator of inflationary pressure) went from around $300 per ounce in 2002 to over $1000 per ounce in 2008. During this time, only once did the deficit exceed $400 billion. According to these projections, there will be no time in the next decade where the deficit will be less than it was in 2008, which was the worst it had been since 2000.
Now President Obama’s economists clearly have convinced him that inflation isn’t going to happen, and the generic defense against the looming inflation is that we’re experiencing some pretty severe deflationary pulls. And we are experiencing deflationary pulls, which explains why inflation has been restrained thus far. Recessions are naturally deflationary, and that deflation has been compounded by the credit crunch (as credit markets are considered extensions of the money supply).
The problem is that these are short term deflationary pulls, while clearly no one expects the inflationary pull that the deficits provide to be short term. We were already experiencing quite damaging inflation before the financial collapse, and it’s going to be very bad once the deflationary pulls of the credit crunch and the recession fade.
There are some other things that bother me about this graph.
First, look at the plans for deficit projections. By both CBO and White House projections, the lowest point in the deficit will be in 2012. Does anyone else smell an electoral scam? It seems to me that President Obama wants to run up the deficit early on, so that in 2012 he can claim that he’s cut the deficit by 75% in an election year, right before he goes about running the deficit back up because he won’t ever face another election. According to the CBO estimates, President Obama plans on cutting the deficit close to 75% between now and 2012, and then setting the budget on course to double the deficit over the next 6 years.
The other thing that bothers me is the fact that the White House estimates are so blatantly different from the CBO estimates in the longer term. They are $100 billion apart in their estimations this year, by 2019 that amount climbs to $500 billion. Now I personally trust technocrats over politicians, so I trust the CBO numbers, and so it bothers me that the White House is essentially outright lying to the American people about the long term impacts of the decisions being made right now.
Any way about it, the Obama administration is going to prove to be a catastrophe economically. Whether the media will pull an FDR and suggest that things would’ve been much worse without him, conveniently ignoring everything he did to make things worse, is yet to be seen, but I wouldn’t be surprised to see them try.
