I held off posting on this because I thought the press and the bloggers would be all over it. But one of the most shocking things is how little attention has been devoted to the huge increase in the federal debt if President Obama gets his way. As someone said, prediction is difficult, especially about the future. Nevertheless, we need to try. And the Congressional Budget Office (CBO) has tried. In March, the CBO published its comparison of the Obama budget proposals with the baseline. The baseline takes as given current law, and current law includes the assumption that laws that are set to expire will expire. So, for example, the CBO baseline includes the assumption that the Bush tax cuts will expire. Also, because the Obama "stimulus" bill is now law, that's also priced into the base line. Those facts are what make the Obama budget all the more striking.
Here are the most striking facts, and if you want more details, you can look at CBO's tables.
In 2008, the net federal debt as a percent of GDP was 40.8 percent. By 2019, it would have risen, under current law as defined above, to 56.1 percent of GDP. Under the Obama budget, it would double to 82.4 percent of GDP, a whopping 47 percent increase from the baseline.
I should add that virtually everyone expected current law not to be the relevant baseline because whoever won the election, the Bush tax cuts for people who are not high income would have been extended. This revision of the law accounts for roughly $2 trillion of the approximately $5 trillion addition to the national debt, with increased spending accounting for the other $3 trillion.
The numbers are troubling for two reasons. First, they're scary, given the even bigger deficits we can expect in the next few decades due to Medicare, Medicaid, and Social Security. Second, while Keynesians tend not to worry about big deficits during large recessions, they generally have worried about big deficits during normal years. Have you seen many Keynesians worrying about this? Can Christina Romer, for example, be feeling sanguine? Now you might argue that she can't talk about this because she gave up her independence when she entered the Obama administration. But what about Keynesians who have their independence? What about Bob Solow? Alan Blinder?