Obama’s Budget: The Greek Model of Public Finance

We were told that because of the extremely deep recession — which according to the National Bureau of Economic Research, ended in June 2009 — the federal government needed to take extraordinary measures to stabilize the economy, including running massive budget deficits. So, because the recession will be more than two years in the past when next year’s federal budget year starts in October 2011, you would think that the president’s proposed deficit would be substantially lower than last year’s $1.4 trillion deficit. But, you would be wrong.

President Obama has unveiled his proposed $3.73 trillion budget, which includes a $1.65 trillion deficit, so his proposed deficit for the upcoming year is 18% larger than the current deficit, and more than 10% of GDP. We’ve seen Greece do it, so now we will try to do it ourselves!

The president’s budget does forecast smaller deficits beyond 2012, but how realistic is that? His health care plan doesn’t start spending until 2012, so that will add to the deficit, and with the Federal Reserve keeping interest rates at historic lows, interest on the debt will start ballooning when interest rates inevitably rise.

On the one hand, it would seem almost obvious that if we manage our federal budget the way Greece has managed theirs, we will end up in the same situation. Is there any reason to state the obvious? On the other hand, when our president proposed this budget, he defending it by saying, “”We can’t sacrifice our future.” It appears to me that if we pass anything resembling this budget, that is exactly what we would be doing.