Okay, lets’ start at the beginning. You don’t have to be an “administration ally” to say that a budget deficit of $400 billion matters less in 2009 than a deficit of this size in 2004, you just have to be a believer in arithmetic. The economy will be almost 30 percent larger in 2009 than it was in 2004, which means that the same deficit in nominal terms is 30 percent less important, given the size of the economy. This adjustment is also necessary in accessing the “record” $412 billion deficit in 2004. This deficit was equal to 3.6 percent of GDP. It is dwarfed by the deficit in 1983, which was equal to 6.0 percent of GDP. In fact, the deficits were larger relative to GDP in all but three years between 1982 and 1993.
At this point, I wanted to scream something about those Social Security surpluses but Dean anticipated part of what I was thinking:
Even adding in the money borrowed from Social Security, the deficit in 2004 would only come to 4.9 percent of GDP.
Thanks Dean but we should note that the Social Security surplus for 2009 will likely be about $100 billion more than it was for 2004. While the General Fund deficit was about $594 billion for 2004, it could be over $700 billion for 2009. OK, that would represent an increase that is just under 20% as compared to the 30% increase in nominal GDP so Dean is still right: the General Fund deficit as a share of GDP for 2009 is likely to be less than it was in 2004. But we are not exactly talking about fiscal responsibility either – even if you’ll hear otherwise from certain members of the Republican Party.