Kevin: Rosy Economic Predictions Won't Help to Fix the Economy

The Obama Administration should put away the rose colored glassesRosy economic projections by the Obama administration mask the true cost of future deficits and undermine global confidence that America will address its dangerously escalating debt-to-GDP ratio that is raising worldwide concerns about the stability of the dollar.

The Obama Administration has shown great confidence in the success of the stimulus and the President’s budget, but that confidence may be misplaced. Unfortunately, trillions of tax dollars are being spent based on overly optimistic economic assumptions that the Administration has failed to update. The Administration continues to project that America’s real Gross Domestic Product (GDP) will decline by 1.2% this year — less than half the 2.8% decline forecast by the Blue Chip Consensus. The Administration continues to assume that the unemployment rate will be 8.1% this year — yet the current jobless rate is 8.9%. Unrealistic economic assumptions result in faulty projected deficits. In other words, the debt the Administration and Congress are piling on our children will be much worse that the White House is willing to tell us.

The Economist called the Administration’s budget assumptions “deeply flawed” in an article entitled, “Wishful, and dangerous, thinking.” These faulty economic assumptions are dangerous because they understate the real costs of the Administration’s expansive — and expensive — new spending proposals. The result will be huge budget deficits and a doubling of the publicly held national debt as a share of GDP by 2017. The non-partisan Congressional Budget Office also warns that by 2019, the annual budget deficit will be $1.2 trillion, much larger than the $779 billion deficit projected by the Administration. Between 2008 and 2019, the publicly held debt will grow from $5.8 trillion to $17.3 trillion.

Congressional leaders also have their heads in the sand. They orchestrated passage of the President’s budget by relying on accounting gimmicks to keep the costs down. As the Washington Post observed, “Congress deals a blow to ‘honest budgeting.’” The end result will be virtually the same dangerous level of excessive deficit spending and debt as the Administration proposed. Our children and grandchildren will have to pay the price for this irresponsibility for decades to come.