The Concern Has Always Been Long-Term Deficits
With the FY 2014 deficit continuing a trend of falling deficits over the past few years, some commentators have argued that budget hawks are inconsistent in not breaking out the champagne when they were so concerned with the high deficits of 2009-2012. In reality, we have consistently expressed our concern about the long-term budget outlook while acknowledging that the large deficits of that time were both a product of and necessary to respond to the Great Recession. In fact, one of our reports from July 2009 that is used as an example of panic about short-term deficits actually said quite the opposite (in bold italics no less):
The answer is to continue with stimulus policies as necessary, but, in order to regain the country’s fiscal credibility, to promptly develop and announce a plan to reduce the deficit and close the long-term fiscal gap. This plan would be implemented as soon as the economy is strong enough to absorb it.
We talked about developing a plan in the short term but not implementing it until economic conditions improved enough to warrant doing so. We did not recommend implementing the deficit reduction in the short term.
Nor did we focus on short-term deficits in releases or analyses of CBO ten-year baselines. We always called attention to the long-term path of deficits and debt and called for deficit reduction to focus on the structural imbalance that existed in the absence of economic weakness.
Examples are abound.
After passing a stimulus package, the President and the Congress should focus on developing a long-term budget plan that addresses entitlements, tax reform, and spending restraint. [emphasis added]
Although large short-term deficits may be necessary to put the economy on a path to recovery, debt cannot sustainably continue to grow as a percent of GDP over the long-term. [emphasis added]
Although large near-term deficits do not in themselves pose a threat to economic growth (and to the contrary, can strengthen it), the CBO shows that deficits will persist even after the economy has recovered...Policymakers must, therefore, take affirmative steps to bring the debt under control. Given the fragile state of the economy, aggressive debt reduction would be risky in the short-term. Instead, policymakers must devise and enact a credible plan which stabilizes the debt at a low enough level to allow for future fiscal stability and reassure credit markets, once the economy recovers. [emphasis added]
While large deficits may be warranted in the short-term to buttress the economy, they pose a serious threat to our economic wellbeing down the road. [emphasis added]
These projections underscore the importance of announcing a debt reduction plan now which would phase in savings over the medium and longer-term. Under such an approach, policymakers could mitigate the short-term impacts of debt reduction by giving the economy time to recover and creating certainty about the future, while bringing down deficits and debt later in the decade to promote private investment and economic growth. [emphasis added]
Ideally, lawmakers should replace the sequester with an intelligent and gradual deficit reduction plan that controls the debt over the long-term. Doing so would result in both short and long-term economic gains, and could avoid painful and disruptive austerity later. [emphasis added]
Our consistent message was always to de-emphasize short-term deficits as they were rising and remained elevated in the wake of the Great Recession, and in fact to make clear that they were necessary given the economic collapse. We frequently acknowledged the need for increased borrowing during times of economic weakness and drew attention to the structural deficits that would remain after the economy recovered. If we do not address long-term deficits, it will become more difficult for policymakers to undertake the kind of stimulus used during the Great Recession if the need arises again.