THE BLOG
10/31/2013 07:55 pm ET | Updated Dec 31, 2013

No Wonder We're Stuck in a Slog

I know I've been going on about fiscal drag a lot lately, but a) it's been historically large, as I'm about to show, b) it's a big reason we're stuck in the current econo-slog, and c) I'm not nearly as repetitive as the folks who go on so loudly and incorrectly about how badly we need to cut our near-term deficits. Moreover, as the picture shows, they're winning.

The Treasury today released the data for the fiscal year 2013 budget deficit, which amounted to $680 billion, or 4.1 percent of GDP, down about $400 billion from last year's deficit, which was 6.8 percent of GDP. The 2.7 percentage point drop came from 1.5 ppts higher tax receipts and 1.2 ppts lower outlays (both relative to GDP).

That's the largest one year decline in the budget deficit since 1969. The deficit is down 6 percentage points of GDP since 2009 -- the largest four-year decline since 1950. We're engaged in a level of budget austerity that would make a European policy maker proud.

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Source: OMB, Treasury

I probably don't have a lot of budget hawk readers by now, but just in case, let me assure you that as a card-carry employee of the CBPP, I claim solid street cred re sustainable fiscal policy. I am, in fact, the founder of the CDSH club (cyclical dove, structural hawk). You don't reduce your budget deficit, especially not this quickly, until the economy has much more velocity than is currently the case -- when firms are hiring, wages and incomes are rising (and not just at the top), unemployment is falling for real (not due to labor market withdrawal), investors stop sitting on their mountains of cash reserves, and there's a bit more inflation afoot. Nor do you jam the Fed's aggressive monetary policy with fiscal headwinds.

It's Halloween night and I'm sitting in my home office with ghouls and goblins outside and a black cat snoozing on the sofa. If I were more creative, I'd whip up a costume as a mindless, hair-on-fire deficit alarmist and go out there and scare the crap out of everybody.