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Is The Deficit Shrinking?

This is interesting. The White House says the deficit this year is trending below forecasts, with higher revenues and lower expenditures, reports David Cho of the Washington Post:

The federal deficit is running significantly lower than it did last year, with the budget gap for the first half of fiscal 2010 down 8 percent over the same period a year ago, senior Obama administration officials said Monday.
The officials attributed the results to higher tax revenue and to lower spending than projected on bailing out the financial system. If the trend continues for the rest of the year, it would mean the annual deficit would be $1.3 trillion -- about $300 billion less than the administration's projection two months ago for 2010.

I've been meaning to make a point about deficit forecasts. Over the last fifteen years, the official forecasts have missed every major change. During the 1990s, the deficit was forecast to remain stubbornly high even after President Clinton's 1993 deficit reduction. Instead, the red ink withered away. What's more, the budget forecasts overestimated the deficit -- then, eventually, underestimated the surplus -- every year. Starting in 2001, revenues collapsed far deeper than expected, until the economy began to recover midway through the decade, when they recovered faster than expected. Then, after the financial crisis, the deficit exploded beyond all projections.

Basically, the pattern is that the budget forecasts are too conservative, in the sense of failing to account for change, both positive and negative. Predictions are consistently too optimistic in the wake of recoveries, and too pessimistic in the wake of booms. This is understandable, as change can be hard to predict. But the discussion of the deficit over the last year has assumed the enormous deficits forecast to be some kind of immutable fact, and it's not. It's a projection, and given that the projection was made in the depth of a recession, recent history suggests it could prove too pessimistic.