What is a deficit hawk to do?

I love the title of the Obama administration's budget document, "A New Era of Responsibility." But do the numbers back up the marketing? In particular, should deficit hawks rejoice in this new found responsibility in the nation's capital? Are we about to put federal government on a sounder fiscal footing, leaving a smaller debt to future generations?

Few economists would blame either the Bush or Obama administrations for running some degree of budget deficit during economic downturns. While we might argue about the size of the appropriate deficit, lower tax revenue and greater outlays on, say, unemployment insurance are a natural and appropriate response to recessions and their immediate aftermath. What is more telling is what happens to the budget picture during periods of economic normalcy.

With that perspective in mind, let's compare the previous and current administration.

During the period 2005 to 2007, the U.S. unemployment rate hovered in the ballpark of 5 percent. What was the budget balance? According to OMB historical documents, the budget deficit averaged just under 2 percent of GDP during those three years.

Now compare these results to the new Obama budget. For the moment, let's put aside concerns about the economic forecast on which the budget is based and take their figures at face value. According to the Obama administration numbers, the economy will reach normalcy of 5 percent unemployment in year 2014, and they project unemployment remaining at that level thereafter. (I infer they take 5 percent to be an estimate of the natural rate of unemployment, which seems reasonable.) What happens to the budget balance when we get to that long-run equilibrium? According to their numbers, under their proposed policies, the budget deficit will average a bit over 3 percent of GDP during that time.

The bottom line: If you are a deficit hawk who lamented the Bush budget deficits, the new administration's budget should not make you feel much better. President Obama will give us different fiscal priorities than President Bush did, but the borrowing and debt imposed on future generations will not be very different, at least if the numbers presented in the Obama administration's own budget document can be trusted.