Monday, July 28, 2008

Staggering Deficits—The Law of Large Numbers

On July 28, 2008, the White House estimated that the budget deficit for the current fiscal year, FY 2007-08 (October 1, 2007 - September 30, 2008), will amount to $389 billion, and that the deficit for FY 2008-09 will be a record $490 billion. The explanation for these enormous deficits is a weak economy, which reduces tax receipts, and the $170 billion stimulus package approved by Congress earlier this year. The Congress plans to raise the federal debt limit from $9.815 trillion to $10.615 trillion, an increase of $815 billion, as part of the FY 2008-09 budget.

If elected, Senator Obama has said that his first legislative act as president would be another stimulus package, as much as $100 billion, to fix a broken economy. If $100 billion is good, wouldn’t $200 billion be better? $300 billion, anyone? This is a game of fiscal poker, which means higher future interest payments and greater dependence on foreign buyers of U.S. debt.

Millions, billions, trillions. Who can make sense of such large numbers? There is little point in attempting to save a few hundred million dollars here and there in government programs with deficits of half a trillion dollars.

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