People in that camp believe the 2009 stimulus should have been bigger and that the federal government should have run up larger deficits to help put people back to work.
Lately, even some deficit hawks have begun contemplating the possibility that the budget deals of the past two years may have pretty much solved the short-term deficit problem. The latest Congressional Budget Office forecast, released last week, shows that this year’s deficit will come in under $1 trillion — the first time that’s happened in Obama’s presidency.
And if the sequester takes effect, the deficit is on track to keep falling through 2015, according to CBO. Though it would start rising slowly again thereafter, the amount of debt held by the public would be fairly stable as a percentage of the economy, hovering between 73 percent and 77 percent for the rest of the decade.
Stabilization — stopping the rapid rise in government borrowing that accompanied the recession — has long been policymakers’ primary goal. The bipartisan Committee for a Responsible Federal Budget argues that policymakers should be more ambitious, pursuing savings of at least $2.4 trillion, so that the debt is shrinking as a percentage of the economy by the end of the decade instead of growing again.
But others aren’t so sure that’s wise. The left-leaning Center on Budget and Policy Priorities this week argued that stabilizing for the next decade would not only “represent an important accomplishment,” but buy time for policymakers to sort out their next steps at a time of great uncertainty.
For example, both Obama and congressional Republicans agree that soaring health costs are the most important driver of future borrowing. But in 2009, health costs suddenly stopped rising as fast. Last year, the growth of costs for each Medicare patient was essentially flat. In its new forecast, the CBO cut the projected cost of Medicare over the next decade by roughly $500 billion.
“No one would have predicted this slowdown four years ago,” said the center’s president, Robert Greenstein, adding that no one understands why it happened.
Until policymakers figure out what is happening, he said, it would be difficult to figure out the best way to continue to bring costs down.
“We know we have to do more on health care,” Greenstein said. “But we’re not in a position now to make intelligent policy choices.”
Other economists warn that putting off action to address the longer-term problem of funding entitlements for an aging population could make them even more difficult to solve. In his address, Obama mentioned the need for entitlement reform, but offered no major proposals for achieving it.
“A cynical reading is [Obama] can skate by and leave his successor with a disaster,” said Douglas Holtz-Eakin, a former CBO director who now heads the American Action Forum, a conservative think tank. “We’ve made zero progress on the structural problem, and they just don’t want to do it.”
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