Wampum

Beginning in the 1980s, some have argued that rising budget deficits do not require either tax increases or spending cuts. They argue that there is no need for any pain or sacrifice. We can just grow our way out of the deficit. Does recent history support that argument?

In FY 2001, the economy grew at only a 0.5% rate but the budget was $127 billion in surplus.

In FY 2002, economic growth rose to 2.2%. One might expect that the rising growth rate would continue the surplus but, in fact, the surplus vanished and the deficit was $157 billion.

The CBO estimates when the final numbers are in, FY 2003 GDP growth will have risen to 3.2%. That may not be great but it is decent growth. Did a return to decent growth reduce the deficit? Nope. In fact, the deficit swelled to a record $375 billion.

CBO also estimates that economic growth will accelerate to 4.8% in FY2004. Surely with economic growth above long term averages, we can expect that the record budget deficit of 2003 will shrink. Accordng to the CBO, even with good growth, the budget deficit is estimated to also grow by more than $100 billion to a new record of $477 billion.

The CBO estimates economic growth for FY 2005 to remain above 4%. Will three straight years of economic growth above 3% shrink the defict? Of course not. President Bush will introduce a FY 2005 budget with a new record estimated deficit of a whopping $521 billion dollars.

One is left to wonder exactly when economic growth is supposed to start reducing the defict. Is it possible that the cause of the rising deficits is to be found in fiscal policy rather than economic performance?