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An improbable opportunity

How small is $483 billion?

By most yardsticks, the answer would be not small at all. But when it comes to the federal deficit, consider these facts:

  •  The nation’s annual shortfall has not been that small since 2008, when financial calamity struck.
  •  From 2009 to 2012, the deficit was more than twice that high—topping $1 trillion in each of those years.
  •  In 2013, the gap was nearly $200 billion higher.

Seen in this light, $483 billion—the deficit for fiscal year 2014, according to final results released last month by the Treasury Department—begins to look rather modest.

Still not convinced? OK, let’s look at the deficit as a percentage of gross domestic product, which is how economists prefer to view it. According to Treasury officials, the 2014 deficit was 2.8 percent of GDP. Its average over the last four decades: 3.1 percent.

Here’s an even more striking then-and-now: In the years Ronald Reagan occupied the White House, the deficit averaged 4 percent of GDP.

Is it any surprise that the federal deficit has largely disappeared as a political issue?

It’s hard to see this as anything but a good thing. For too many years, budget battles fouled the atmosphere in Washington, choking positive action on any number of important matters. With the “incredible shrinking deficit,” though, both sides in Congress were willing to reach a two-year budget agreement late last year.

Yet as noted here before, it’s important that we not lose sight of two other facts. First, estimates by the non-partisan Congressional Budget Office see the deficit swinging upward again before long, due to the aging of the population and other factors.

And second, unlike annual deficits, the nation’s mountain of debt is not getting smaller. Before the Great Recession, it equaled 35 percent of GDP; it hit 74 percent in 2014 and is projected to climb to 78 percent by 2024.

With midterm elections now past and the mad rush toward 2016 some months off, a narrow opening exists. Lawmakers could work on a long-term budget deal.

Will this happen? It seems improbable. Yet two years ago who would have predicted a 2014 federal deficit level that Ronald Reagan would have happily embraced?

11/14/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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