Joe Scarborough falsely claimed that the president's "own OMB director admits" that his budget will "create an unsustainable debt." In fact, OMB director Peter Orszag recently said that deficits at the level estimated by CBO in scoring Obama's proposed budget "would ultimately not be sustainable," but also said: "I think that what you're going to see, again, under our assumptions, our policies lead to lower deficits than that." Orszag also recently asserted that "[t]he President's Budget," if enacted, would "put the nation on a sustainable fiscal path."
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On March 22, MSNBC host Joe Scarborough falsely claimed on his Twitter page that President Obama is "still defending a budget that his own OMB director admits will create an unsustainable debt." Similarly, during the March 23 edition of Morning Joe, Scarborough falsely asserted that Obama is "trying to pass budgets" that his own "budget director says [are] unsustainable." In fact, Office of Management and Budget (OMB) director Peter Orszag has not "admit[ted]" that Obama's proposed budget "will create an unsustainable debt." Rather, when asked during a March 20 conference call about the Congressional Budget Office's (CBO) projection that deficits would "remain between 4 percent and 6 percent of GDP" from 2012-2019 under Obama's budget, Orszag said that deficits in the "5 percent of GDP range ... would ultimately not be sustainable" but also said: "I think that what you're going to see, again, under our assumptions, our policies lead to lower deficits than that." Moreover, in a March 20 blog post on the OMB website, Orszag specifically said that "[t]he President's Budget," if enacted, would "put the nation on a sustainable fiscal path."
Orszag also challenged the CBO projections in the blog post, writing that CBO's estimates "are subject to a high degree of uncertainty" and that CBO's projections after 2014 are "somewhat more pessimistic than the consensus."
From Orszag's March 20 blog post:
First, CBO's projections, like any budget projections, are subject to a high degree of uncertainty. (Trust me ... I know the former CBO Director quite well!) As an example of how much budget projections can shift, at this point last year, CBO was projecting a 2009 baseline deficit of $207 billion. It is now projecting a baseline deficit of about $1.7 trillion. CBO itself has estimated the margin of error around its 5-year deficit projection to be about 5 percent of GDP in either direction -- which means the confidence interval around the 2014 deficit is plus or minus about $900 billion.
Also note that a key driver of the new CBO deficit numbers after 2014 are estimates about long-term economic growth -- where CBO is somewhat more pessimistic than the consensus. For example, CBO projects long-term real economic growth that declines to 2.2 percent per year. Blue Chip pegs long-term real growth at 2.6 percent per year and the Federal Reserve forecasts long-term real growth of between 2.5 and 2.7 percent -- the same as the Administration, which is projecting real long-term growth of 2.6 percent. These differences may not seem big, but over time they accumulate. And since the deficit is the difference between two much larger numbers -- spending and revenue -- even relatively small differences in assumptions can have a magnified impact on the deficit. (As an example, imagine that spending is $1,050 and revenue is $1,000, so the deficit is $50. If revenue declines by just 10 percent, the deficit triples to $150.)
Second, and more importantly, the CBO report only underscores the severity of the economic and fiscal crisis the Administration has inherited. There is need for urgent action to get our economy moving again, invest for the future, and put the nation on a sustainable fiscal path. The President's Budget has proposed to do exactly this by addressing our big challenges head on[.]
From Orszag's March 20 conference call:
MR. ORSZAG: As expected, CBO released its re-estimate of the president's budget today. And, as expected, it reflected a worsening of both the economic outlook and the fiscal picture since CBO's January report.
Let me comment a bit about the projections first. I think one thing that needs to be -- that is often underappreciated is how sensitive the budget projections are to small changes in assumptions in how uncertain they are.
So for example, if you look at the CBO's analysis itself, the confidence interval for the budget projection -- the deficit projection for 2014 is plus-or-minus $900 billion, that is to say, plus-or-minus 5 percent of GDP. There's a huge amount of uncertainty surrounding the budget-deficit projections. And the reason that that's the case is that the deficit is the difference between two large numbers, spending and revenue.
And just as a quick example, if spending is $1050 and revenue is $1000, then the deficit is $50. If revenue then declines by just 10 percent, the deficit skyrockets from 50 (dollars) to $150. In other words, a 10 percent reduction in revenue generates a tripling of the budget deficit. And that basic construct, or that basic insight, is why the deficit number is particularly sensitive to even small changes in assumptions, both technical and economic.
Second point is, if you look at that -- the central estimates, the central projections, especially in the back five years, they are very sensitive to the rate of economic growth. CBO's projected growth rate for the economy declines to 2.2 percent per year in the long term. The blue chip is at 2.6 percent. The Federal Reserve's central tendency is between 2.5 and 2.7, and we are at 2.6. So one of the significant reasons for the out-year deficits being different is that CBO's growth projection is below ours. But it's also below the blue chip and the Federal Reserve's central tendency also.
Despite those -- but nonetheless -- and although there are some, you know, technical differences, and these always arise when two sets of budget projections are put forward, we recognize that the budget resolution will be written off of the CBO numbers.
And I will just close by saying that we remain confident that the four key principles that the president put forward for the budget -- in particular, that it must invest in health care, that it must invest in education, that it must invest in clean energy and that it must cut the deficit in half by the end of his first term -- will all be accomplished as the resolutions move through committee next week.
And I think with that we can go ahead and open it up to questions.
OPERATOR: Thank you. And ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touchtone phone. You'll hear a tone indicating you've been placed in queue and you may remove yourself from the queue at any time by pressing the pound key. If you're using a speakerphone, please pick up your handset before dialing.
And first we have Andrew Taylor with the Associated Press. Please go ahead.
TAYLOR: Thank you, Peter. Regardless of the uncertainty over the projections, do you believe that structural deficits in the range of 4 (percent) or 5 percent of GDP are sustainable?
MR. ORSZAG: I think that what you're going to see, again, under our assumptions, our policies lead to lower deficits than that. The budget committees are going to be, you know, working their way, as they always do. No one ever had an expectation that they would just take our budget, Xerox it and vote on it. And I am confident that what will come out of the budget committees is also -- will also lead to a fiscally sustainable task.
So I don't want to get into a game of mixing and matching, you know, our projections and our policies. That's one set of -- that's sort of one set of things. And the second set of things will be what the budget resolution reflects, using CBO numbers. What I'm confident about is that both of them -- I know ours and I'm confident that the budget resolution using CBO's numbers will reflect a fiscally sustainable path.
TAYLOR: But what about the question itself, which is are deficits of 4 (percent) or 5 percents of GDP sustainable?
MR. ORSZAG: Deficits in the let's say 5 percent of GDP range would lead to rising debt-to-GDP ratios in a manner that would ultimately not be sustainable.
TAYLOR: Thank you.
From the March 23 edition of MSNBC's Morning Joe:
SCARBOROUGH: You look at the numbers, and this is interesting. You had the Democratically appointed head of the Congressional Budget Office last week saying the numbers aren't sustainable and that they would create a situation. This is, again, the Democratic CBO -- Congressional Budget Office -- said they're unsustainable, and just as [Sen.] Judd Gregg [R-NH] said, it would bankrupt America. And you actually had -- hey Chris, could we go to the last of the Orszag full-screen on the deficits -- full-screen.
The question was asked because these deficits are going to cause 4 to 5 percent -- these budgets, 4 to 5 percent deficits of the entire GDP. They even asked Barack Obama's budget director whether it was sustainable -- deficits in, let's say, the 4, 5 percent range would lead to rising debt-to-GDP ratio in a manner that would ultimately not be sustainable. And his response was at the end, deficits -- what's that? Yeah, deficit -- yeah, deficits in the, let's say, 5 percent range of GDP would lead to that and would not be sustainable. So --
MIKA BRZEZINSKI (co-host): Well, when you have Peter Orszag saying that, you wonder a little bit in terms of their plan, but their -- also their projections seem like.
SCARBOROUGH: Well, you've got the CBO saying it's not sustainable. You've got the head of the Budget Committee, the Democrat, saying they're not sustainable. You've got the Republican head of the Budget Committee saying they're not sustainable. And you have Peter Orszag saying deficits of that number are not sustainable. And then you have the president in a radio address this weekend saying I'm sticking with this budget the whole way.
SCARBOROUGH: Can you spend as much money as a, quote, down payment on the health reform that we -- as we've spent on the Iraq war while you're having all these trillion-dollar bailouts, while you're trying to pass budgets that the congressional budget director says is unsustainable, your budget director says is unsustainable, the head of the Democratic Senate Budget Committee says is unsustainable, and the Republican head said is unsustainable.
Can you? No, you can't do that. You can't do everything. George Bush tried to do everything. He tried to fight two wars, he tried to cut taxes, he passed a $7 trillion Medicare drug plan, he increased --
BRZEZINSKI: But you --
SCARBOROUGH: -- domestic spending. He tried to do everything, and it crushed this country fiscally. Barack Obama is doing what George Bush did and multiplying it four, five, six times.