The latest retreat on economic credibility at the White House comes at a particularly bad time. Barack Obama has tried to sell his economic agenda on health-care reform and cap-and-trade as economic boons instead of boondoggles. However, his mid-year recasting of American economic performance and admission of the deficit impact of his budgets will continue to erode confidence in his competence:
U.S. unemployment will surge to 10 percent this year and the budget deficit will widen to $1.5 trillion next year, reflecting a “deeper recession” than previously expected, White House budget chief Peter Orszag said.
The Office of Management and Budget also forecasts that the U.S. economy will shrink 2.8 percent this year, worse than the 1.2 percent contraction the OMB projected in May. For next year, the budget office said the gross domestic product will grow 2.0 percent, less than the 3.2 percent expected in May. By 2011, the economy would be well on its way to recovery, growing at a 3.8 percent annual rate, according to the administration’s mid-year economic review, released this morning.
The budget shortfall for 2010 will mark the second straight year of trillion-dollar deficits. The projected deficit for the fiscal year that begins Oct. 1 is higher than the $1.26 trillion forecast in May and reflects expectations economic growth will be slower this year and next because of “the severity of the crisis in the U.S. and in our trading partners,” said Christina Romer, White House chief economist, who along with Orszag briefed reporters on the report.
Let’s recall the difference between Orszag’s OMB projections for the deficit in March, and the CBO’s numbers:
The difference between these projections was the prediction of Obama’s economic advisers of US economic performance. They predicated their numbers, in the light pink, based on the entirely unrealistic expectation of getting -1.2% GDP growth this year, after the first quarter came in at -6% (annualized), later revised to -5.4%. Even while the second quarter continued to look poor, the OMB continued with its sunny analysis. Now that we’re in the middle of the third quarter and growth remains elusive — and more importantly, unemployment continues to rise — the White House has no fig leaf to hide their errors.
Why did the OMB hold out this long against CBO predictions? Simple; the Obama administration needed sunnier numbers in order to justify its plans to spend vast sums of money on its social-engineering agenda. Even in the best of times, these programs would be disastrous, but during a deep recession, they will kill any hope of economic growth. In short, OMB indulged in political hackery, hoping to continue their deception long enough to get ObamaCare and cap-and-trade through a compliant Congress. Now they have to admit that they either conducted an incompetent analysis while most significant economists scoffed at their projections for growth, or cooked the books.
Orszag should resign as OMB director after this performance. (I have no expectations that he will, but he should.) Remaining in the President’s budget office only extends the credibility crisis to everything else produced by the White House on the economic agenda. How can anyone trust Obama and Orszag after the complete failures of Porkulus and the budget projections, especially given the political manipulations involved?