February 14, 2012
The folks at the Washington Post have worked themselves up into the usual tizzy over the fact that President Obama has not proposed large cuts to Medicare and Social Security in his 2013 budget. In keeping with this spirit over at Fox on 15th Street, Post columnist Dana Milbank thinks he has nailed President Obama on a big increase in his deficit projections since last fall.
Milbank tells readers:
“The Washington Post’s Lori Montgomery asked why the projected debt had swelled by $1 trillion since September. Zients spoke about ‘differences in economic assumptions.’
But that didn’t hold up, because the Economist’s Greg Ip pointed out that the White House is using an optimistic 3 percent forecast for economic growth this year, higher than the Federal Reserve and private-sector forecasts.”
You can hear the high fives and gotchas down at the Post even up here near the city’s boundaries in 16th Street Heights. It turns out that the Post gang missed their mark, which they would know if anyone there ever did their homework.
Budget projections are made on economic assumptions; what matters is how the assumptions change, not what the economy is actually doing. While the assumptions should reflect the real world, it is only the assumptions that matter. If we look at the assumptions used last September we see that they are in fact quite a bit more optimistic than the assumptions being used in the 2013 budget.
Source: Office of Management and Budget.
Last fall the administration was assuming that the economy would grow by 2.6 percent in 2011 and 3.3 percent in 2012, the current budget assumes 1.8 percent and 2.7 percent, respectively. Projected annual growth in the new projections doesn’t exceed growth in the September projections until 2015. Clearly the slower growth assumptions would imply larger deficits. Whether this could explain the full $1 trillion change would require a more careful examination of all the assumptions used in the projections, but Milbank and the Post’s gotcha doesn’t hold water.
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