The Deficit

The NYT's "Economic Scene" has this article today by David Leonhardt on the ballooning government deficit. The article warns about the ramifications of the trillion dollar deficits projected by the Congressional Budget Office, saying "This debt will constrain the country’s choices for years and could end up doing serious economic damage if foreign lenders become unwilling to finance it." The article goes on to attribute most of the deficit to Bush policies (tax cuts, the war, etc.) and the business cycle (i.e. the recession) but adds that "Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested." It points out that Obama's continuation of some of Bush's policies and reliance on reducing the deficit through health care reform (the effects of which won't be seen for a while) rather than through significant tax increases will create a bigger deficit in coming years than the Obama team is promising.

Brad DeLong from UC Berkeley has some thoughts about the article: A Pretty Good but Not Excellent Story from David Leonhardt on the Deficit. His biggest concern is that "David doesn't say what part of the $1.2 trillion deficit is a problem," pointing out that the US can realistically expect to run about a $500 billion deficit with no major ramifications, plus an additional $400 billion due to recessionary strain, meaning that the remaining $300 billion is the problematic part of the deficit.