The analysts and officials I've spoken to today generally see three goals in the new budget for fiscal year 2011: Deal with the short-term problems of the recession, lower medium- and long-term deficits, and make good policy with a focus on "middle-class security." I'm going to post about all of these things, but let's start with how the budget addresses the recession.
It turns out that we're getting more fiscal stimulus than many have anticipated. Much has been made of a $100 billion jobs bill placeholder that includes new tax credits the president announced last week, and the Center for Budget and Policy Priorities Director Robert Greenstein points out that the bill also includes some $166 billion to extend temporary provisions enacted in the 2009 stimulus bill, including continuing the Making Work Pay tax credit, fiscal relief for states, and unemployment benefits.
"There is a not insignificant risk of a double-dip recession; there were concerns that policy-makers wouldn't do enough on a short-term temporary front to boost the economy," Greenstein told reporters. "[Former McCain economic adviser] Mark Zandi called for $250 billion more in short-term boosts, and that's pretty much exactly what the budget does."
Indeed, despite the strangely conservative rhetoric coming out of the administration, which my sources attribute to the White House political operation, OMB Director Peter Orszag had a nice defense of Keynesian economics at today's budget briefing, warning against the mistakes made in the Great Depression when the Roosevelt administration tried to cut the deficit too quickly in 1937, leading to a spike in unemployment.
"In 2010, private borrowing has collapsed ... the Treasury is the last borrower left standing," Orszag said. "That is exactly what should happen [during a recession]."
-- Tim Fernholz
