The budget deficit is way too low

New data from the Office of Management and Budget shows that the federal budget deficit for 2015 will be 2.5 percent of GDP, lower than the historical average and representing a sharp decline from where it was in Obama’s first year in office.

The White House is crowing about it.

But the question is why?

At the moment, the interest rate the government has to pay on bonds is extremely low — 2 percent for a 10-year bond, and just under 3 percent for a 30-year bond. That means even a project with a pretty low rate of return would be worth borrowing money to do. And if for some reason you take the view that there are literally no useful infrastructure projects the government could undertake, we could simply tax people less.

The sad truth is that the deficit has fallen so rapidly not because of any brilliant scheme on the part of the White House, but because the political system is operating in a dysfunctional way. Republicans and Democrats disagree, naturally, as to whether tax cuts or spending hikes would be better, so the natural thing to do would be to compromise on a little of both. Instead, between the fiscal cliff and sequestration we “compromised” on doing exactly the opposite.