Building a Foundation for Budgetary Failure

J.D. Foster / February 26, 2009

The title to President Obama’s budget refers to a new era of responsibility. Responsible budgeting begins with credible economic forecasts. The Obama economic forecast doesn’t merely reflect the return of the famous Rosey Scenario, but puts Rosey in fantasyland. Don’t take my word for it, just look at the numbers compared to what the Blue Chip consensus of private forecasters are saying.

To begin, the Obama budget assumes the economy will contract only 1.2 percent this year. In the current quarter, the economy is already contracting at an annualized rate of over 5 percent, with further contraction expected in the second and third quarters. The Blue Chip consensus forecasts a decline of 1.9 percent, a figure sure to be revised up in March to something closer to the Congressional Budget Office forecast of a 2.2 percent decline for 2009. So even in the current year, the Obama forecast is about a full percentage point off the mark.

Over the course of the next 4 years, from 2010 to 2013, the Obama budget assumption for economic growth exceeds that of the Blue Chip consensus by over a full percentage point each year, and by an average of over 1.3 percentage points. This is not a small difference of opinion. (more…)