Deficit Forecasts: Does Treasury Secretary Snow Have a Point?

The Carpetbagger, Kevin Drum, and Brad DeLong are hammering Snow for this statement:

President Bill Clinton left office in 2001 with a federal budget surplus of $127 billion. President George Bush ran a deficit of $319 billion in 2005. So who deserves more credit for fighting red ink? No question, says Treasury Secretary John Snow: It's his boss, Bush. Sipping a latte at a Starbucks coffee shop with reporters in Washington two days ago, he said that "the president's legacy will be one of having significantly reduced the deficit in his time," and said Clinton's budget was a "mirage" and "wasn't a real surplus." Snow said the Clinton surplus was inflated by a stock-price bubble and that Bush will be remembered for cutting the gap from a record $412 billion in the 2004 fiscal year.

OK – to say the historical figures are not real is either incredibly stupid or dishonest. But let’s read further:

Government forecasts for continued surpluses depended on those tax payments continuing, Snow, 66, said. “You're going to make a lot of mistakes if you forecast based on a bubble,” he said. “Bubbles burst.”

There is a limited but important point in this statement. If we realize that we have a one-time and temporary piece of goods news on tax collections and one is silly enough to extrapolate some long-run deficit forecast based on the false assumption that this one-time surge is permanent, one will make a mistake. But that is exactly what this Administration is doing when they claim that current fiscal policy will see a sizeable reduction in the deficit over the next few years.