Bad Budget News
Much of the discussion about the Obama administration’s Fiscal Year 2011 budget proposal has ignored the troubling economic assumptions upon which it is based.
OMB head Peter Orszag is giving a press conference just now with Christina Romer, head of the Council of Economic Advisors, on the president’s Fiscal Year 2011 budget. Ms Romer explained the economic assumptions underlining the budget forecasts. She noted that expected fourth quarter-over-fourth quarter real GDP growth would be 3% in 2010, 4.3% in 2011 and 2012, and would average 3.8% in the five years thereafter. These figures are in line with Fed projections.
She then gave the unemployment forecast. At the end of 2010, the unemployment rate, according to the administration’s forecast, will be 9.8%. At the end of 2011, the rate will be at 8.9%. And at the end of 2012, after the next presidential election, the unemployment rate will be 7.9%.
Paul Krugman, meanwhile, explains what the administration proposes to do about this:
So what’s the response to this dismal, family-destroying prospect? A brief, small additional stimulus, followed by a spending freeze. In essence, the administration is accepting mass unemployment as just one of those things we have to live with.
Now, we all know that this mainly reflects political constraints; this isn’t an Obama-bashing post. But think about how sick our political system is, if this is the best we can do. Nobody — not the Fed, not the administration, not Congress, is willing to do anything to create jobs despite dire projections.
What we’re witnessing is an awesome national failure.