On March 9th, I wrote:

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This is less a criticism of President Obama's budget, and much more a criticism of his projections. The statement "3.1 percent by 2019" assumes a certain figure for GDP in 2019. The economic forecasts of Goldman Sachs, JP Morgan, the Treasury and the Fed have all been re-evaluated over and over in the last year; the recent movement of the DJI suggests that they may be re-evaluated again. Lack of confidence in Mr Obama's fiscal stimulus in Wall Street and worries about the absence of a systematic plan to deal with the financial system doesn't help things much.

Mr Obama's projections (http://www.econbrowser.com/archives/2009/03/is_the_administ.html) are optimistic; that is fitting for a campaign run on a slogan of "hope", but it will not do for budgetary matters. What Free Exchange thinks of Mr Obama's budget is irrelevant to this post; what is relevant is that the budget may deepen the deficit more than expected."

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This is in from Forbes:

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"The Congressional Budget Office said Friday that the national debt under the president's budget will be $2.3 trillion deeper than the White House estimates...When the White House released its budget in February, its economic forecast was in the same ballpark as other estimates, but decidedly on the sunny side. One assumption, for example, was that the average unemployment for 2009 would be 8.1%. That assumption was quickly blown to pieces when the Bureau of Labor Statistics announced two weeks later that unemployment had already reached that level by January. The CBO projects 2009 unemployment will instead be 8.8% before peaking in 2010...That economic reality could be even worse than what the CBO projects.

The White House estimates are "incredibly high by recent historical standards," says Martin Regalia, chief economist for the U.S. Chamber of Commerce. The Chamber, quick to point out that it supported both the $700 billion bank bailout and the stimulus package, is opposed to Obama's budget. If spending stays elevated without a robust recovery, an increase in taxes is one of the only ways to close the deficit.

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As the theory of Ricardian Equivalence points out, savvy citizens will realize that all the money they make now ought to be saved so that they can pay the hike in taxes in the future. Even if Mr Obama's projections are on target, taxes will have to be increased; if the projections are too sunny, then the taxes will either go on for very very long, or be very very high. Either way, if David Ricardo is to be believed, smart investors will save all the money the government gives them and the gains they make today in the market to pay for their taxes later. Spending now may be a patriotic duty, but it might also make for leaner years in the future; being modest now may lend a more comfortable spending power down the road.

Let's hope Ricardo is wrong and that people do not think that far ahead; a sudden increase in spending would be detrimental to the economy's recover and, ironically, mean more government spending and even higher taxes later. Saving was always a negative externality, but perhaps it's cost has just gone higher.