The parking lot was full at my local mall last Thanksgiving weekend. I've noticed that holiday gift lists seem a bit longer this year compared to last. Almost all signs suggest a stronger-than-expected economic rebound. Factories are running at their fastest pace in two decades. Productivity soared at an astounding 9.4% annual rate in the third quarter. Business investment is strong. The labor market is perking up. What's not to like?
The budget deficit, for one. Here is an amazing -- and disturbing -- statistic: The U.S. had a budget surplus in January, 2001, of $269 billion. The current budget deficit is $390 billion, and most economists predict it will swell to at least $500 billion by next year's November election. That's a breathtaking swing of $769 billion, before taking into account the trillions in long-term debt burdens Washington is blithely passing on to future taxpayers.
Sure, a portion of the budget deficit stems from waging war in Afghanistan and Iraq, as well as countering the damaging effect of an economic downturn with fiscal stimulus. Nevertheless, even vigorous growth won't bring the budget under control.
NO STRATEGY. "Any relief is fated to be temporary, as the massive obligations of Medicare, prescription benefits, and Social Security loom just over the horizon," says Peter Bernstein, the dean of finance economists. "Who can be complacent when we are heading into that firestorm?"
Unfortunately, the Bush Administration seems all too complacent about budget deficit's long-term impact. The reason is partly that the Administration doesn't have any economic vision beyond tax cuts. The President is already lobbying for making a number of existing, temporary, breaks permanent, which would worsen the deficit. More frightening is that it seems the President has no deeper policy strategy beyond getting reelected.
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