What Will Stimulus Packages Do To The Defict?

There's been a lot of talk about economic stimulus packages, but little discussion about what they would mean for the federal deficit. David Wessel, economics editor at The Wall Street Journal, talks with Renee Montagne about how the U.S. hasn't had a deficit this large since World War Two — and what that means for the new Obama administration.

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RENEE MONTAGNE, host:

With the economy looking worse by the day, there's a lot of talk in Washington about another giant stimulus package. There's little talk, however, about what all this spending is doing to the federal budget deficit. Today the Treasury will release the latest numbers on that deficit. To talk about that, we turn to David Wessel. He's economics editor of The Wall Street Journal and a frequent guest on our program - and more frequently these days, David. Welcome.

Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Thank you.

MONTAGNE: What are you expecting that number to be?

Mr. WESSEL: Well, last year the federal government ran a deficit of $455 billion. That was more than double the previous year. And the current fiscal year is going to be substantially more. Some estimates, sober estimates, are putting it at close to $1 trillion. Tax revenues are sinking as profits and wages fall. The government's already spending a lot to try to get the economy going again. And President-elect Obama promises to spend even more.

MONTAGNE: And you're talking about $1 trillion for the year.

Mr. WESSEL: That's right. We haven't had a deficit that big since 1946.

MONTAGNE: So it's hard to get one's arms around the whole idea of the deficit. Is it a problem? For one thing, President-elect Barack Obama seems to think it's OK to ignore the deficit for now.

Mr. WESSEL: Right. The president-elect has said that the patient needs a blood transfusion right now, and we have to stabilize the patient. And that means, in his words, we can't worry short term about the deficit. And that is what the conventional economic wisdom is. You need the government to come in and compensate for the fact that private spending is contracting and state and local governments are contracting.

And it comes at a time when it turns out the government is having no problem borrowing. Everybody in the world seems to want to own Treasury bills because they're seen as so safe. So the interest that the government has to pay to borrow money is very low. The problem, though, is in the long term. We had a nasty deficit problem going into this mess. Now we're making it bigger. So it can't go on forever. President-elect Obama's advisers know that. So the question is how do you convince people that you're going to do better in the future, but you're not going to do better right now?

MONTAGNE: Well, do you have an answer to that question?

Mr. WESSEL: I suspect that they're spending a lot of time thinking about that right now. If you look at his economic team - people like Larry Summers at the White House, Tim Geithner at the Treasury, Peter Orszag at the Office of Management and Budget - these are people who have been quite eloquent in the past about why it's important for the nation to save more and not to rely so much on foreign borrowing forever.

So, I suspect what they're doing is trying to figure out if they can get away with just promising to do better in the deficit in the future, or whether they're going to actually put into the stimulus legislation some things that will reduce the deficit in the future - perhaps caps on health care spending or some tax increases on upper-income people - so that people will see that they're serious about doing something about the deficit, just not right now.

MONTAGNE: David, thanks very much for joining us.

Mr. WESSEL: You're welcome.

MONTAGNE: And those numbers will come out later today. David Wessel is economics editor of The Wall Street Journal.

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