The CBO Says We Are SOL…

The CBO has released an assessment of President Obama’s proposed 2010 budget requests, and has found that the proposals would likely increase the federal deficit by $2.3trillion more over 10 years than the White House had originally stated.

Additionally, the study projects that Obama’s spending proposals would likely inflate the budget deficit to over 4 percent of GDP, and by the end of his second term (oy!), that figure would rise to over five percent:
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But so what, argue the new Keynesians, Republicans have run deficits for years and it was only until Clinton took over in ’93 did we finally balance the books to the plus side. And besides, we’re smack dab in the middle of a crisis requiring swift and bold (read: expensive) action.

Perhaps, but what if the government spending multipliers that form the basis of Obama’s economic models were based on older Keynesian assumptions? This report presented by economists/authors Cogan, Cwik, Taylor and Wieland last month conclude that government spending multipliers in new Keynesian models used universally in academia are much less than older models. How much less? The report says the spending impacts presented by Obama’s Economic Advisor Christina Romer on the President’s stimulus package and budget proposals are six times larger than those implied by government spending multipliers in a typical new Keynesian model. Romer’s numbers also report job impacts that are up to six times larger than the alternative models the authors present.

If the economy is humming along at 4% growth and the budget deficit is under three percent of GDP by this time in 2016, I’ll consider it Monopoly money well-spent. But until that time, I’ll remain a healthy skeptic.