Do we have a deficit problem?

In an article in the NY Times, Paul Krugman points out something that should be glaringly obvious to anyone who has been paying attention, that the short run deficit problem is somewhat solved.  The current US deficit is projected to be $845 billion, that's roughly 6% of the US GDP.  But, that's down from a peak of $1.4 trillion at the height of the recession (which was almost 10% of US GDP).

Now, $845 billion is a very big number, but remember, we are still not at full employment.  If we had been at full employment, the US budget deficit would have been $423 billion, i.e. roughly 3% of GDP.

Two things to point out:

1. While Krugman is sanguine that this is sustainable, the crowding out of Federal expenditure on almost everything apart from Health and Retirement is still a long term issue.
2. However, 3% of GDP is really very much within the realm of what is manageable as evidenced by the lack of panic during the Bush years with a similar full employment budget deficit, so the short term deficit crisis is mostly artificial.

By the way, Krugman's biggest assumption is that the US economy can grow its way out of the problem.  It probably can, but one of the most important drivers of the growth is likely to be immigration and it seems that there is some bipartisan movement on that front.  Still far from certain they'll succeed at getting something out the door though.