Recession Deficits

Householders seeing more money going out than coming in are advised to take a two-pronged approach to financial well-being: 1. Spend less; 2. Earn more.

It’s much the same with governments. The United States faces a daunting, record-setting budget deficit. The nonpartisan Congressional Budget Office projects that, barring policy changes, the federal deficit will be $1.35 trillion for fiscal year 2010, which started back on Oct. 1. That’s 9.2 percent of gross domestic product but still a little less than the 9.9 percent of GDP the deficit took up in FY 2009, the largest bite of GDP since the end of World War II.

Like the cash-strapped householder, we have two choices if we don’t want to live with deficits forever: 1. Spend less; 2. Earn more.

Recently, the first choice has been generating the most – and loudest – outrage. Many fiscal conservatives – isn’t everyone a fiscal conservative in his own mind? – decry the $700 billion federal outlay that was the Troubled Asset Relief Program. The CBO says, however, that the TARP bill will be “substantially lower” because many of the financial institutions that took TARP money have already repaid it. The Budget Office predicts TARP spending will be $218 billion less in 2010 than last year.

Were we thrilled with the bailout? No, but we remain convinced it was necessary at the time, averting another Great Depression. The only thing great about the Great Recession we did get is that it hasn’t – so far – descended into depression status.

Should we and can we spend less? Of course, but that takes political will in Washington, which is in shorter supply than political civility. One man’s pork is another man’s essential domestic tranquility-ensuring, common defense-providing, general welfare-promoting government necessity.

It’s also important to remember that much of the deficit is a result of the recession itself, which has led to both a decrease in revenue and an increase in outlays.

In 2009, total government revenue dropped by 17 percent. When corporate profits and personal income plunge, so do tax receipts. Meanwhile, spending on Medicaid and unemployment benefits soared. The CBO says payouts for jobless benefits increased by $76 billion in ’09, more than double those in 2008.

Until the economy rebounds and hiring resumes, that line item will shrink only because unemployed Americans exhaust their benefits.

Budget deficits aren’t inherently evil. Even if they were, in these times, they may be a necessary evil. That said, we’re not about to recommend growing comfortable with them.