The Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) released strikingly similar updated budget and economic outlook numbers this morning. As expected, the budget deficit will come in just under earlier predictions. OMB's Mid-Session Review places the government's total red ink for the year at $1.58 trillion, while CBO estimates $1.6 trillion. The government's long-term debt, which the White House now predicts will grow faster than previous estimates, will stand at 9.05 trillion in ten years. CBO paints a slightly rosier picture, projecting the 10-year debt to stand at $7.14 trillion, but admits that their assumptions about projected revenues over that time are high by historical standards, and, conversely, their assumptions about projected discretionary spending are low. Although these estimates are hardly certain, especially the long-term debt numbers, there is no doubt they will generate a great deal of discussion.

In the slow-political-news-cycle that is August, this is HUGE. When you go home tonight and turn on the TV, you are going to hear scores of pundits decrying "the highest budget deficit since World War II," and complaining that, in light of these "new" estimates, the Obama administration must stop spending and address the national debt, lest our country fall apart at the seams over the next several months. But before you go out and purchase an old SUV turned in under Cash for Clunkers, pick up a bunch of guns and rations, and head for the hills to wait out the collapse of civilization, let us take a rational look at these numbers.

The information reported today is not a surprise, nor is it evidence that the current budget is a failure or that short-term fiscal policy requires revision. James R. Horney, Director of Federal Fiscal Policy at the Center on Budget and Policy Priorities (CBPP), argues that the report simply confirms what we knew six months ago, namely that due to the federal government's necessary actions taken to address a housing and financial markets meltdown, and a severe general economic downturn, we were looking at a record-setting deficit. While recognizing that high amounts of long-term debt can be harmful to an economy, Horney also warns about tackling the problem prematurely:

Just as the new deficit numbers do not show that recent fiscal policies were misguided, they also do not indicate the need for a dramatic change in the budgets proposed for the next few years. The President and Congress should not try to reduce deficits too quickly over the next few years because that would undercut the crucial efforts to stimulate a still fragile economy and risk stalling the nascent recovery.

If you read the whole CBO report, you find that the budget office expects the economy to pick up at the end of this year and be humming along at 4.5 percent growth by 2012. Moreover, as the economy functions well below its potential level, CBO projects inflation to remain "very low." This is not to say that brining down deficits will be easy. Even as the economy begins to pick up and deficits being to fall, the administration, according to the CBO report, will have to enact "some combination of lower spending and higher revenues than the amounts now projected," and only then will the country be on a fiscally sustainable path.

Image by Flickr user iDanSimpson used under a Creative Commons license.